Pareto - 80/20 rule - Why to fire bad clients

80/20 clients and employees - lessons of the Pareto principle

The Pareto principle is essentially the 80/20 rule. 80 percent of your X comes from 20% of your Y.  Usually this is considered as 80% of your income comes from 20% of your clients.  However, this principle works for a wider variety of issues.

Today at the co-working space one of the business consultants was talked into firing a client. The crux of the issue was the amount of time and emotional energy spent. She was spending 80% of her time and emotional energy on one client. It almost does not matter how much they bring to the table, they should be fired. 

With the free time and energy that you get from losing this client or employee you will replace them.

My personal journey on this was with the first employee that I straight-up fired.  In my time with The Assist Group I had pretty much complete control over my team. Except I was not allowed to straight fire someone.

Here is the setup. I was 27 years old. The only one in the company who could do the work, talk to clients, and report to upper management. I was in control of a division that brought in 80% of the revenue. I had a team of about 12, and revenue of about $8mm/yr (growing at a 30-50% rate, which means you are always behind).

I was probably the oldest person on my team. And there was only one other man on the team (lots of older as well as XY chromosome types in the company just not in my division).

There are a bunch of reasons for this, including my personal belief that for a job that required 100% on the job training, and is complicated and fast paced, you should be hiring young people with light behind their eyes, and usually people who came to the door were women (I’d say the ratio of women hired to women applicants is even).

Seeing that this was my family’s company, started by my mother, I did not so much as look at an employee in an inappropriate manner. That said, upper management believed that I needed some cultural changes. To this end, when the next employee was hired they literally forced me to choose my third choice, a 40 yr old women who had been ‘in the industry’ for 20 years.

--- To me ‘in the industry’ is the worst thing that a new product can have, they do not know how to change and are always struggling to change (see Harvard Business Review--How to spot talent (hint: Talent if overrated)

Being part of my nature, I gave her every benefit of the doubt. But I knew before day 30 that she was not a fit. I told upper management this, and they responded that I hadn’t given her enough time. I will not get into the issues with having people on a different floor (literally) and in a different department having control over hiring or firing.

Now comes a personal high point of my career. After about 6 weeks two of my employees asked me for a meeting on the upstairs floor. Not a typical event for a meeting called by employees with no stated agenda. The two gals who called the meeting flat out told me that the elder (relatively) lady had to go. This was a personal victory because it meant that my team members were comfortable enough to call this kind of meeting. Whatever I did (good hiring, good management, not sparing the rod, or just luck...what do I know?) created a good team.

This meeting gave me the ammunition to actually fire the lady. I went to HR, I got her last paycheck (I was told you fired people on Wednesday and Thursday), and just went into it. Honestly, it was hard to do. However, the moment she was gone there was a collective sigh of relief. Over the next 6 weeks the team was closer together, more efficient, more work was done than normal and, by the time we found a replacement, we had lost almost nothing.

How does this related back to Pareto? Tangentially at best. Hopefully the relationship of pouring too much energy into the wrong place is more clear. The lesson, the amount of time and energy applied to this lady was closer to the 80% of effort, even though she was worth less than 20% of the work.

But hey, what do I know?

<This post is heavily related to my Some Tips on Hiring &  The story of Sharon posts>