What is the best way to explain Pareto principle to an SME and why they should apply it?
It seems like big corporations do not mind any analysis to be completed and they are happy to spend budget. However, when it comes to small or medium company management is more reluctant to deep-dive into such an analysis.
What are your thoughts on that? Did you have a similar experience?
At around the time of WW1 the brave soldier Schwejk observed that
"80% of all the beer is drunk by 20% of all men".
This shouldn't be too difficult to assimilate even for the smallest and least educated business owner?
On a more serious note: define SME? It can be a sole self-employed carpenter, or - at the other end of the spectrum, a business with 50 employees and 10m turnover (the official definition of SME). To make things more complicated, this rather broad range may also vary by
- Customer base: from a consumer business serving thousands of customers, to a B2B firm subcontracted by a bigger one and working for a single client (what Pareto?)
- Industry sector and nature of product/service: small scale manufacturing will differ form a professional services firm (accountants, lawyers)
- Ability to individually identify customers: businesses where they have an account and their identity is known, vs anonymous consumers 'from the street' who you cannot track or 'tag' with a 20% or 80% segment sticker...
I took this long just to illustrate that even a simple 20:80 for a simple SME is not so simple. So the shorter answer (even shorter than the Schwejk joke above, and even more correct) is
Best to approach each individual case according to who/what that SME is.