The 20 – 60 – 20 rule of thumb is a great framing to keep in mind as you think about where to invest in your company, and where you need to dig deeper to avoid throwing good money after bad. Here’s how it works.
20% of the initiatives in your company represent clear winners. They drive real growth. They are profitable or have a clear path to profitability. They deliver cash flow. They excite and motivate your team. They fulfill the mission of the company. When it comes to thinking about future investment, the strategies and tactics in this bucket are clearly at the top of the list.
20% of the work going on at your company represent clear losers. No traction. Money pits. The work isn’t really aligned with your strategy. Experiments were tried but failed. Despite the best efforts of some members of your team, there is no path to a meaningful business here. You should be reviewing these projects regularly. Shut them down, and move resources into more productive work, as fast as you can.
And that leaves us with the 60% in the middle. And it’s that 60% that kills companies, especially startups. These are all of the projects and initiatives that are just ‘meh’. Smart people are working really hard on projects that have had real potential for quarter after quarter. But they never reach escape velocity to the top 20%.
They get just enough investment of time and money to keep them out of the bottom 20%.
They aren’t clear winners and they aren’t clear losers. But every day, they take more time from your management team, and more cash from your bank account, while meandering along in the zone of mediocrity.
You need to truly understand the financial and people impact of this work. Too many leadership teams talk about Gross Revenue or maybe even Gross Profit. But it’s not just the direct costs of these projects. It’s the diverted brainpower of you and your management team. It’s the larger operations teams you need to build to support the teams involved with these initiatives. It’s the larger office space, extra desks, and overhead that comes with a large group of people grinding it out in this world of 60%.
You need to root out the work in the middle. You can’t let projects roll on, from quarter to quarter, sucking up time and money. You need to create a discipline of running tight experiments, spotting your failures fast, and pulling the plug so that you can reinvest those resources into new experiments.
Because when you don’t, entire teams and organizations will get built around that 60% of work. There will be glimmers of false hope that push projects to the next quarter, and then the next fiscal year. You’ll think that with a bit more investment, a few more people, one more quarter, it will all start to come together. Which is what you thought last quarter. And last year.
Meanwhile, the cash slowly disappears. And morale plummets as success seems elusive. The company slows down as time is spent trying to solve the puzzle of the 60%.
Don’t fall into this trap. Because it’s the 60% in the middle that is going to kill your company.