Welcome to Daivik’s Newsletter!

If you are new around here, this is a bi-weekly newsletter about IRL events, startups and building products! If you find this useful, feel free to refer a friend or subscribe for future newsletters using this link: Subscribe

Featured Events

Events that I host, will be at or think might be worthwhile to check out

👋 - I plan to be there, feel free to say hi!

🎊 - I am hosting! Please feel free to swing by!

Toronto

10/10 - Founders Poker - Register

San Francisco

10/05 - AI Cowering Session - Cerebral Valley - Register

10/13 - Light AI Launch - Register

10/26 - SF Tech Party - Matthew Taksa - Register

New York

10/16 - Learn the Language of Fundraising - NY Tech Week - Register

10/16 - Swell VC Founder Happy Hour - NY Tech Week - Register

Want to see your event here? Is there something going on that I should be highlighting? Feel free to reach out and I would be happy to feature them!

The 80–20 Rule and Startups (Pareto Principle)

Ever since I have emabarked on startup journey, I have gotten many opinions on the best principles to implement. However, very few have been more interesting to me than the 80–20 rule, also known as the Pareto Principle. Although very simple in theory, it’s application is very difficult. However sucessfully doing so has been a gamechanger for many startups helping founders allocate their resources and efforts more effectively to achieve maximum impact.

Understanding the 80–20 Rule

The 80–20 rule is a simple yet powerful concept that suggests that roughly 80% of your results come from 20% of your efforts. This principle was initially formulated by Italian economist Vilfredo Pareto in the late 19th century when he observed that approximately 80% of Italy’s land was owned by 20% of the population. Over time, this principle has found applications in various fields, including business and startups.

In the context of startups, the 80–20 rule implies that a minority of your actions, strategies, or customers will likely account for the majority of your success. In relation to applying this rule to your startup, consider the following insights:

1. Identifying the Vital Few

Start by identifying the 20% of your activities that generate 80% of your desired outcomes. For a startup, this might mean pinpointing the core features of your product or service that resonate most with your target audience. Focus your attention on perfecting these aspects, as they are likely to have the greatest impact on your growth.

2. Efficient Resource Allocation

The 80–20 rule can help you make better decisions about resource allocation. It’s common for startups to have limited resources, including time, money, and manpower. By recognizing which activities or initiatives are most productive, you can direct your resources where they will yield the highest returns.

3. Customer Segmentation

In the world of startups, not all customers are created equal. Applying the 80–20 rule to your customer base can reveal that a small fraction of your customers contributes significantly to your revenue and growth. Understanding who these customers are and tailoring your efforts to cater to their needs can lead to substantial gains.

4. Iteration and Refinement

The 80–20 rule underscores the importance of iteration and refinement. Startups often face the temptation to chase after every opportunity or feature request. However, it’s often the case that a few key features or strategies drive the majority of success. Continuously refine and optimize these areas to maintain and build upon your achievements.

5. Avoiding Burnout

Startups can be all-consuming, and founders often wear multiple hats. Recognizing the 80–20 rule can help prevent burnout. By focusing on the most impactful tasks and delegating or outsourcing the rest, you can maintain your energy and enthusiasm for the long journey ahead.

Real World Examples

Pretty simple in theory right? Well let’s see how a successful application of this has led to the growth of some of the biggest companies and products in the world.

1. Airbnb: Focusing on High-Value Hosts

Airbnb, a now iconic platform, is an excellent example of the 80–20 rule in action. In Airbnb’s early days, the founders realized that a small fraction of their hosts generated the majority of their revenue. These high-value hosts consistently provided outstanding accommodations and hospitality.

Instead of spreading themselves thin across all hosts, Airbnb concentrated their efforts on identifying and nurturing these top-performing hosts. They introduced the “Superhost” program, offering perks and support to hosts who consistently delivered exceptional experiences. This strategy paid off handsomely, as these Superhosts attracted more guests and contributed significantly to Airbnb’s rapid growth.

2. Google AdWords: Optimizing Keyword Bids

Google, has long recognized the power of the 80–20 rule within its advertising platform, AdWords. Advertisers often find that a small percentage of keywords drive the majority of their conversions and revenue. Google encourages advertisers to identify these high-performing keywords and allocate more resources to them.

By constantly monitoring and optimizing bids for these critical keywords, advertisers can achieve a higher return on investment (ROI). This approach allows them to make the most of their advertising budget, ensuring that their campaigns target the most lucrative opportunities.

3. Dropbox: Refining the User Referral Program

Dropbox, faced a very competitive market in its early days and distinguished itself using a clever growth strategy rooted in the 80–20 rule. When they first created their referral program, they kept it flat by offering additional storage space to users who referred new customers. However, they soon realized that only a small percentage of users were actively participating in the referral program and driving the majority of new sign-ups.

Instead of sticking with the one-size-fits-all approach, Dropbox honed in on these highly engaged users, and revamped their referral program to have tiered rewards and incentives. This approach led to exponential user growth, as the most active referrers brought in more users, rapidly expanding Dropbox’s user base.

4. Instagram: Feature Prioritization

When Instagram was a fledgling startup, it recognized the need to prioritize features that mattered most to its users. Analysis revealed that a significant portion of user engagement centered around photo filters and editing tools. Instagram chose to invest heavily in refining these features, making them user-friendly and visually appealing.

By focusing on perfecting the 20% of features that drove 80% of user engagement, Instagram rapidly gained popularity and eventually became a social media giant. This approach highlights the importance of concentrating efforts on core functionalities that resonate with users.

Conclusion

In a world where startups face myriad challenges and uncertainties, harnessing the power of the 80–20 rule can be a key differentiator, helping you achieve maximum impact with minimal resources. Although we tend to want to do everything, it seems to be really imporant to spend time trying to focus on doing the right things. The 80–20 rule is an interesting way entrepreneurs can look at doing this to ultimately pave their trajectory towards exponential growth and subsequent success.

Check out this Podcast Episode!

You can also listen on Spotify, Apple Music, and Google Podcasts

Spencer Camp is the founder of Future, a new Super App, which aims to provide a centralized experience for all your FinTech needs.

We went through what led Spencer to create this app, how he believes Future can be competitive against companies like JP Morgan Chase, Robinhood, and Sofi as well as his perspective on bringing super apps to North America.

I am traveling for the next couple of weeks. If you know anyone in New Delhi, Bangkok or Amsterdam that I should meet, please reply to this email and get me in touch! Love to meet new people and discuss ideas!

🚀 Are you a non technical founder and looking for a fractional CTO? Or a startup looking for help with it’s product strategy?

Reply to this email and let’s talk!

Thanks for reading,

Daivik Goel