Power Law Doesn't Mean Cut the 80% — It Means Tier It

An earlier piece here argued that a small business owner’s resources — time, attention, money — usually follow a power law: a small share of clients, products, or channels drive most of the value, and a long tail contributes very little. The conclusion was to concentrate on what’s actually doing the work rather than spreading yourself thin trying to serve everything equally.

A comment on that idea, from a business owner reacting to it, put the real-world problem well: most owners can find their top 20% in an afternoon. What they can’t do is cut the bottom 80%, because every one of those accounts has a name and a history. The math is easy. The goodbyes aren’t.

That’s a genuinely useful observation, but it rests on a misreading worth correcting directly, because it’s a common one: a power law distribution isn’t an instruction to cut the 80%. It never was. The actual instruction is to allocate resources differently across it — which is a much less dramatic, much more manageable thing to actually do.

Why Elimination Is the Wrong Instruction

The 80% isn’t dead weight sitting in the business by accident. It’s where the next 20% comes from.

A power law distribution describes today’s shape of value, not tomorrow’s. The client contributing almost nothing this year might be a completely different account next year — a referral source that hasn’t paid off yet, a slow-growing relationship that’s two years from becoming a top account, a small order that’s about to turn into a much bigger one. The same logic shows up in the piece on seed-stage venture strategy: a VC can’t identify which company will be the outlier in advance, so the right move is broad coverage at seed, not narrowing down to guesses. A small business’s client list, product line, or channel mix works the same way, on a smaller scale. You don’t know today which part of the 80% is about to move.

Cut the 80% outright, and you’re not trimming waste — you’re deliberately eliminating your own coverage of future outliers before they’ve had the chance to reveal themselves. That’s the opposite of what power law thinking actually recommends.

There’s also a more mundane reason elimination is usually wrong: a meaningful share of the 80% isn’t failing, it’s just smaller. A client that reliably brings in a modest, steady amount of revenue every month isn’t underperforming — they’re doing exactly what they’ve always done, at a scale that happens to be smaller than your top accounts. Cutting them doesn’t free up capacity for growth. It just makes the business smaller.

The Real Instruction: Tiered Allocation

The actual action a power law distribution recommends is resource allocation, not subtraction. Once the shape of the distribution is visible, the useful next step is dividing it into tiers, and matching the level of attention each tier gets to how much value it’s actually producing — not cutting anyone off, just being honest about where the time and energy should concentrate.

A simple three-tier structure works for most small businesses, whatever the resource being allocated actually is:

Tier one — the top 20%. These get the most attention: proactive check-ins, priority access, the owner’s direct involvement where it matters, first look at new offerings. This is where the business already knows the value is concentrated, so it’s where the deepest investment of time belongs.

Tier two — the steady middle. Reliable, unspectacular, worth keeping well-served but not worth the same intensity of attention as tier one. Efficient, mostly systemized service — the goal here is consistency, not growth investment.

Tier three — the long tail. Light-touch, low-cost-to-serve, kept in the business rather than cut, but without the owner’s scarce attention spent trying to grow them individually. The point of keeping this tier isn’t to actively cultivate every name in it — it’s to not foreclose the possibility that one of them moves up on its own, or through a low-cost, systemized nudge rather than personal effort.

What moves through the tiers should be reviewed periodically, not set once and forgotten. The whole value of tiering over cutting is that movement between tiers stays possible in both directions.

What This Actually Looks Like

Clients. Top clients get proactive relationship management — regular calls, priority scheduling, first access to new services. Middle clients get reliable, well-run standard service. The long tail gets kept on file, served efficiently through systems rather than personal attention, and reviewed periodically for signs of movement — a bigger order, a referral, a shift in their own business that might change what they need from yours.

Products or menu items. The signature items that drive most of the revenue get the marketing spend, the prominent placement, the ongoing refinement. Steady, mid-performing items stay on the menu with no special investment. Slow-moving items get kept if the cost of carrying them is low, and cut only when the specific cost of continuing to offer them — not just underperformance — outweighs what keeping the option open is worth.

Marketing channels. The one or two channels reliably producing customers get the bulk of the budget and testing effort. Channels producing occasional results get a small, ongoing allocation rather than either heavy investment or complete abandonment — because channel performance shifts, sometimes for reasons entirely outside the business’s control.

Time and hours. This is the resource where tiering matters most, because unlike a client list, time can’t just be left in a low-tier holding pattern — every hour has to go somewhere. The discipline here is protecting a fixed block of time for tier-one work before the day’s inevitable smaller demands eat into it, rather than letting the loudest, most immediate request each day set the agenda by default.

Why the Goodbyes Feel So Hard

The comment that prompted this piece was right about the emotional difficulty, and it’s worth taking seriously rather than dismissing. Every client, every product, every relationship in the long tail does have a name and a history. That difficulty is real. But it’s also a sign the framing of “cutting” was the wrong one to begin with — tiering doesn’t ask an owner to have that hard goodbye conversation with 80% of their business. It asks them to be honest about where their limited time is actually going, and to make sure it’s going, deliberately, toward what’s earning it — while leaving the door open on everything else.

Explain It Like I’m Four

Imagine you have a garden with twenty plants. Five of them are already big and give you lots of fruit every week. The other fifteen are still small — some are just slow growers, some are seedlings that only started a little while ago, and one or two might just be plants that aren’t doing very much.

A friend looks at your garden and says: “Just pull out the fifteen small ones. Focus all your time on the five big ones.” That sounds efficient. But here’s the problem — you don’t actually know which of those fifteen small plants is about to have a big growth spurt. Pull them all out, and you’ve thrown away a plant that might have become your next big producer, right along with the ones that really were never going anywhere.

The better plan isn’t to pull anything out. It’s to water and check on your five big plants every single day, because that’s where most of your fruit is coming from right now. The fifteen smaller ones still get water — just not as much daily attention. You check on them less often, but you still check. And every so often, you look again: has one of them grown taller? Started budding? If so, maybe it moves up to getting daily attention too.

Nobody gets pulled out of the garden. Everybody just gets watered differently, based on how much they’re actually growing right now — and that can change.

One sentence version: don’t pull out the small plants — just water the big ones more, and keep checking whether any of the small ones are starting to grow.

Where in your business have you been treating “not yet performing” the same as “not worth keeping”?

About Me

I'm Michael Philippou, co-founder of Big Love, a plant-based ice cream business in Santa Monica that I've been running with my wife Victoria for over ten years. Before ice cream, I was a lawyer. I write about the real, unpolished lessons of running a small business — no gurus, no hype, just what's actually worked and what hasn't. Watch more on YouTube (Real Business Real Lessons) or follow along on LinkedIn.