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The 1 Percent Rule: Why a Few

People Get Most of the Rewards
By James Clear | Continuous Improvement, Habits

Sometimeinthelate1800snobodyisquitesureexactlywhenamannamed
VilfredoParetowasfussingaboutinhisgardenwhenhemadeasmallbut
interestingdiscovery.

Paretonoticedthatatinynumberofpeapodsinhisgardenproducedthe
majorityofthepeas.

Now,Paretowasaverymathematicalfellow.Heworkedasaneconomistand
oneofhislastinglegacieswasturningeconomicsintoasciencerootedinhard
numbersandfacts.Unlikemanyeconomistsofthetime,Pareto'spapersand
bookswerefilledwithequations.Andthepeasinhisgardenhadsethis
mathematicalbraininmotion.

Whatifthisunequaldistributionwaspresentinotherareasoflifeaswell?

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Vilfredo Pareto in the 1870s. Photographer unknown.

The Pareto Principle

Atthetime,Paretowasstudyingwealthinvariousnations.AshewasItalian,
hebeganbyanalyzingthedistributionofwealthinItaly.Tohissurprise,he
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discoveredthatapproximately80percentofthelandinItalywasownedby
just20percentofthepeople.Similartothepeapodsinhisgarden,mostofthe
resourceswerecontrolledbyaminorityoftheplayers.

Paretocontinuedhisanalysisinothernationsandapatternbegantoemerge.
Forinstance,afterporingthroughtheBritishincometaxrecords,henoticed
thatapproximately30percentofthepopulationinGreatBritainearnedabout
70percentofthetotalincome.

Ashecontinuedresearching,Paretofoundthatthenumberswereneverquite
thesame,butthetrendwasremarkablyconsistent.Themajorityofrewards
alwaysseemedtoaccruetoasmallpercentageofpeople.Thisideathatasmall
numberofthingsaccountforthemajorityoftheresultsbecameknownasthe
ParetoPrincipleor,morecommonly,the80/20Rule.

Inequality, Everywhere
Inthedecadesthatfollowed,Pareto'sworkpracticallybecamegospelfor
economists.Onceheopenedtheworld'seyestothisidea,peoplestartedseeing
iteverywhere.Andthe80/20Ruleismoreprevalentnowthaneverbefore.

Forexample,throughthe20152016seasonintheNationalBasketball
Association,20percentoffranchiseshavewon75.3percentofthe
championships.Furthermore,justtwofranchisestheBostonCelticsandthe
LosAngelesLakershavewonnearlyhalfofallthechampionshipsinNBA
history.LikePareto'speapods,afewteamsaccountforthemajorityofthe
rewards.

Thenumbersareevenmoreextremeinsoccer.While77differentnationshave
competedintheWorldCup,justthreecountriesBrazil,Germany,andItaly
havewon13ofthefirst20WorldCuptournaments.

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ExamplesoftheParetoPrincipleexistineverythingfromrealestatetoincome
inequalitytotechstartups.Inthe1950s,threepercentofGuatemalansowned
70percentofthelandinGuatemala.In2013,8.4percentoftheworld
populationcontrolled83.3percentoftheworld'swealth.In2015,onesearch
engine,Google,received64percentofsearchqueries.

Whydoesthishappen?Whydoafewpeople,teams,andorganizationsenjoy
thebulkoftherewardsinlife?Toanswerthisquestion,let'sconsideran
examplefromnature.

The Power of Accumulative Advantage

TheAmazonrainforestisoneofthemostdiverseecosystemsonEarth.
Scientistshavecatalogedapproximately16,000differenttreespeciesinthe
Amazon.Butdespitethisremarkablelevelofdiversity,researchershave
discoveredthatthereareapproximately227hyperdominanttreespeciesthat
makeupnearlyhalfoftherainforest.Just1.4percentoftreespeciesaccount
for50percentofthetreesintheAmazon.

Butwhy?

Imaginetwoplantsgrowingsidebyside.Eachdaytheywillcompetefor
sunlightandsoil.Ifoneplantcangrowjustalittlebitfasterthantheother,
thenitcanstretchtaller,catchmoresunlight,andsoakupmorerain.Thenext
day,thisadditionalenergyallowstheplanttogrowevenmore.Thispattern
continuesuntilthestrongerplantcrowdstheotheroutandtakesthelions
shareofsunlight,soil,andnutrients.

Fromthisadvantageousposition,thewinningplanthasabetterabilityto
spreadseedsandreproduce,whichgivesthespeciesanevenbiggerfootprintin
thenextgeneration.Thisprocessgetsrepeatedagainandagainuntiltheplants
thatareslightlybetterthanthecompetitiondominatetheentireforest.

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Scientistsrefertothiseffectasaccumulativeadvantage.Whatbeginsasa
smalladvantagegetsbiggerovertime.Oneplantonlyneedsaslightedgeinthe
beginningtocrowdoutthecompetitionandtakeovertheentireforest.

Winner-Take-All Effects
Somethingsimilarhappensinourlives.

Likeplantsintherainforest,humansareoftencompetingforthesame
resources.Politicianscompeteforthesamevotes.Authorscompeteforthe
samespotatthetopofthebestsellerlist.Athletescompeteforthesamegold
medal.Companiescompeteforthesamepotentialclient.Televisionshows
competeforthesamehourofyourattention.

Thedifferencebetweentheseoptionscanberazorthin,butthewinnersenjoy
massivelyoutsizedrewards.

ImaginetwowomenswimmingintheOlympics.Oneofthemmightbe1/100th
ofasecondfasterthantheother,butshegetsallofthegoldmedal.Ten
companiesmightpitchapotentialclient,butonlyoneofthemwillwinthe
project.Youonlyneedtobealittlebitbetterthanthecompetitiontosecureall
ofthereward.Or,perhapsyouareapplyingforanewjob.Twohundred
candidatesmightcompeteforthesamerole,butbeingjustslightlybetterthan
othercandidatesearnsyoutheentireposition.

Situations in which small differences in

performance lead to outsized rewards are known
as Winner-Take-All Effects.

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Thesesituationsinwhichsmalldifferencesinperformanceleadtooutsized
rewardsareknownasWinnerTakeAllEffects.Theytypicallyoccurin
situationsthatinvolverelativecomparison,whereyourperformancerelativeto
thosearoundyouisthedeterminingfactorinyoursuccess.

NoteverythinginlifeisaWinnerTakeAllcompetition,butnearlyeveryarea
oflifeisatleastpartiallyaffectedbylimitedresources.Anydecisionthat
involvesusingalimitedresourceliketimeormoneywillnaturallyresultina
winnertakeallsituation.

Insituationslikethese,beingjustalittlebitbetterthanthecompetitioncan
leadtooutsizedrewardsbecausethewinnertakesall.Youonlywinbyone
percentoronesecondoronedollar,butyoucaptureonehundredpercentof
thevictory.Theadvantageofbeingalittlebitbetterisnotalittlebitmore
reward,buttheentirereward.Thewinnergetsoneandtherestgetzero.

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Winner-Take-All Leads to Winner-Take-Most

WinnerTakeAllEffectsinindividualcompetitionscanleadtoWinnerTake
MostEffectsinthelargergameoflife.

Fromthisadvantageouspositionwiththegoldmedalinhandorwithcashin
thebankorfromthechairoftheOvalOfficethewinnerbeginstheprocessof
accumulatingadvantagesthatmakeiteasierforthemtowinthenexttime
around.Whatbeganasasmallmarginisstartingtotrendtowardthe80/20
Rule.

Ifoneroadisslightlymoreconvenientthantheother,thenmorepeopletravel
downitandmorebusinessesarelikelytobuildalongsideit.Asmore
businessesarebuilt,peoplehaveadditionalreasonsforusingtheroadandsoit
getsevenmoretraffic.Soonyouendupwithasayinglike,20percentofthe
roadsreceive80percentofthetraffic.

Ifonebusinesshasatechnologythatismoreinnovativethananother,then
morepeoplewillbuytheirproducts.Asthebusinessmakesmoremoney,they
caninvestinadditionaltechnology,payhighersalaries,andhirebetterpeople.
Bythetimethecompetitioncatchesup,thereareotherreasonsforcustomers
tostickwiththefirstbusiness.Soon,onecompanydominatestheindustry.

Ifoneauthorhitsthebestsellerlist,thenpublisherswillbemoreinterestedin
theirnextbook.Whenthesecondbookcomesout,thepublisherwillputmore
resourcesandmarketingpowerbehindit,whichmakesiteasiertohitthebest
sellerlistforasecondtime.Soon,youbegintounderstandwhyafewbookssell
millionsofcopieswhilethemajoritystruggletosellafewthousandcopies.

The margin between good and great is narrower

than it seems. What begins as a slight edge over

the competition compounds with each additional

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the competition compounds with each additional

contest.

Themarginbetweengoodandgreatisnarrowerthanitseems.Whatbeginsas
aslightedgeoverthecompetitioncompoundswitheachadditionalcontest.
Winningonecompetitionimprovesyouroddsofwinningthenext.Each
additionalcyclefurthercementsthestatusofthoseatthetop.

Overtime,thosethatareslightlybetterendupwiththemajorityofthe
rewards.Thosethatareslightlyworseendupwithnexttonothing.Thisideais
sometimesreferredtoasTheMatthewEffect,whichreferencesapassagein
TheBiblethatsays,Forallthosewhohave,morewillbegiven,andtheywill
haveanabundancebutfromthosewhohavenothing,evenwhattheyhavewill
betakenaway.

Now,let'scomebacktothequestionIposednearthebeginningofthisarticle.
Whydoafewpeople,teams,andorganizationsenjoythebulkoftherewardsin
life?

The 1 Percent Rule

Smalldifferencesinperformancecanleadtoveryunequaldistributionswhen
repeatedovertime.Thisisyetanotherreasonwhyhabitsaresoimportant.The
peopleandorganizationsthatcandotherightthings,moreconsistentlyare
morelikelytomaintainaslightedgeandaccumulatedisproportionaterewards
overtime.

Youonlyneedtobeslightlybetterthanyourcompetition,butifyouareableto
maintainaslightedgetodayandtomorrowandthedayafterthat,thenyoucan
repeattheprocessofwinningbyjustalittlebitoverandoveragain.And
thankstoWinnerTakeAllEffects,eachwindeliversoutsizedrewards.

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WecancallthisThe1PercentRule.The1PercentRulestatesthatover
timethemajorityoftherewardsinagivenfieldwillaccumulatetothepeople,
teams,andorganizationsthatmaintaina1percentadvantageoverthe
alternatives.Youdon'tneedtobetwiceasgoodtogettwicetheresults.You
justneedtobeslightlybetter.

The1PercentRuleisnotmerelyareferencetothefactthatsmalldifferences
accumulateintosignificantadvantages,butalsototheideathatthosewhoare
onepercentbetterruletheirrespectivefieldsandindustries.Thus,theprocess
ofaccumulativeadvantageisthehiddenenginethatdrivesthe80/20Rule.

FOOTNOTES

1. These numbers are covered in Paretos book, Cours d'conomie politique.

2. Pareto published this discovery in 1906 in a book titled, Manual of Political Economy. As I noted
here, the 80/20 Rule does not mean the numbers involved must be 80 and 20. It's just a shorthand
way of referring to the idea that the majority of the rewards go to a minority of the players.

3. The Pareto Principle shows up constantly in sports. In the National Football League, the top 19
percent of the franchises have won 57 percent of the Super Bowls. In Major League Baseball, the
top 20 percent of the franchises have won 62 percent of World Series championships.

4. Global Wealth Report by Credit Suisse. October 2013.

5. U.S. Desktop Search Engine Rankings by comScore. October 2015.

6. This pattern shows up in negative ways as well. In 2002, Microsoft analyzed their software errors
and noticed that about 20 percent of the bugs cause 80 percent of all errors and 1 percent of
bugs caused half of all errors. This quote comes from an email sent to enterprise customers by
Steve Ballmer on October 2, 2002. The full quote was, About 20 percent of the bugs causes 80
percent of all errors, andthis is stunning to me1 percent of bugs caused half of all errors.

7. Hyperdominance in the Amazonian Tree Flora. Science: Vol. 342, Issue 6156. October 18, 2013.

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