Example of how Price’s Law works in a field/company with 100 people
At my first sales job, I had about 25 colleagues who did the same work. After the first month, I noticed something peculiar.
Only 4 of my co-workers brought in more than half of the total sales. I was 17 years old at the time, and I had no idea why that was. These folks were the superstars on the floor — the untouchables.
Little did I know that this relation holds true for almost everything in business. It’s called Price’s square root law, and it originates from academia.
Value Creation Is Not Symmetric
Derek Price, who was a British physicist, historian of science, and information scientist, discovered something about his peers in academia. He noticed that there were always a handful of people who dominated the publications within a subject.
Price found out the following (now called Price’s law):
50% of the work is done by the square root of the total number of people who participate in the work.
In my example, that means 5 people (square root of 25) should bring in 50% of the sales. That means Price’s law is pretty accurate. On my floor, 4 people brought in about 50%-60% of the sales.
After my first job, I noticed the same ratio at every single company I’ve worked with. The contrast was the biggest when I worked in London for a major corporation, where top sales performers were rewarded big.
Again, the number of people who were rewarded were the square root of the total salespeople. It’s also true for our family business. In every workplace, the relationship between value and people is asymmetric.
Only a handful of people are responsible for the majority of the value creation. It’s very similar to the Pareto principle (the difference is that Price looked at the relationship between people and the work they produced).
What Are The Implications?
In his lecture, Peterson talks about how only a few authors dominate book sales. He mentions Stephen King, who’s been dominating top charts for decades. He’s sold more than 350 million books.
J.K. Rowling has sold more than 400 million books. If you look at the number of books sold in a year, you’ll probably see the ratio described by Price’s law. Only a few authors (out of hundreds of thousands of authors) are responsible for 50% of the sales. But that’s more like Pareto’s principle.
Anyway, let’s not compare theories. These theories and laws are often just that — they are nothing more than models. Let’s look at the implications.
Academics and intellectual bloggers love to dissect the world from their leather desk chairs, drinking their Voss water. They love to explain how the world works.
Look, we don’t have the time to study all the 1419 mental models that exist. We still have to put on our clothes every morning and work, so we can pay the bills. But that’s also not a productive way to live.
Yes, you can’t sit in your ivory tower and criticize the world. But you also should not criticize “unfairness” while you’re working hard to earn your money. We get it, life’s not easy.
And theories like Price’s law are merely ideas — not facts. They don’t hold up in every single situation. So before the pretentious idiots go out and theorize about all the limitations of Price’s theory, let’s stop and think about what we can learn.
Because understanding the underlying idea of Price’s law can make your life a lot easier.
Look at your current profession. Are you in a position to create substantial value? If the answer is no, move on to a different place where you CAN.
Become very good at what you do. That’s the only way you can provide value. We must be realistic. There are no shortcuts. It takes time to be good—let alone be great.
Similarly, companies should hire more A-players who’ve already made asymmetric contributions to other businesses in the past.
That’s one of the most important business lessons I’ve learned by simply observing the minority that creates the most value.
Do Something You’re Good At
That’s the best career advice one can get. Peter Drucker said it for decades. And when you do something you’re good at, you can provide more value.
I apply this advice all the time. For example, I can provide more value at my family business than at a major corporation. I can also provide more value on my blog instead of, let’s say, YouTube.
When you provide more value, you feel better, plus you’ll earn more. Not a bad side-effect of doing great work.
Look, life is not symmetric nor linear. Only a few people in every domain are responsible for half of the results. We’ve established that by now.
Hence, find the domain you can be the important minority — you’ll also get the majority of the benefits. Then, let me know if your life isn’t better.
Do you want to hear more thoughts on Price’s Law? ? Listen to my podcast episode about it.
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