Wednesday, March 17, 2021

Despite All the Madness, There’s Calm at the Top

Sunday, March 14 was Selection Sunday — the day when the 68 teams playing in the men’s NCAA March Madness basketball tournament are announced. Thirty-two athletic conferences offer basketball, and the winner of each conference tournament gets an automatic bid to the March Madness tournament (the Ivy League cancelled its basketball season due to the COVID-19 pandemic, so only 31 conferences are represented this year). The remaining spots are filled by a selection committee based on multiple criteria.

After the announcement, there is continual analysis from basketball pundits down to everyday people as they work to speculate on the outcome of each tournament game and complete a tournament bracket. With so many teams and conferences participating, it would seem like there would be some variety each year regarding who wins. The reality is that despite the upsets and Cinderella stories, there are a few established powers that take the lion’s share of success.

In this year’s tournament, although there are 31 conferences represented, six conferences (Big Ten, Atlantic Coast, Big 12, Southeastern, Pac-12, Big East) are sending 38 teams. Furthermore, the history of the tournament indicates the same disparity continues throughout each round. There have been 80 tournament champions, and of those champions, a team from the six conferences mentioned above has won the tournament 69 times.

At first glance, it may seem surprising how the number of championships is concentrated within a small number of athletic conferences. However, this is nothing new, but is rather a manifestation of the Pareto principle. Named after Italian Vilfredo Pareto, the principle states that 80% of consequences come from 20% of the causes. Pareto’s contributions to society range from sociology to economics, and at the turn of the 20th century, he observed that 80% of the wealth in Italy was held by roughly 20% of the population. 

This principle, also known as the 80/20 rule, can be applied to many different areas of life, including athletics (Tom Brady winning the Super Bowl seven times, meaning that out of the hundreds of quarterbacks to have ever played in the NFL, he’s won 12% of all Super Bowls ever played), insurance (although there may be many claims, major losses typically account for a disproportionately large amount of money paid out), and business (as discussed in-depth below).

Many business owners are keenly aware that a disproportionately large amount of revenue comes from a few key customers. Although a company may do business with 100 customers in any given year, there is a good chance the top 25 — or maybe even the top 10 or top 5 — customers are responsible for a huge portion of the company’s revenue. It can be good for companies to have customers they can count on for large amounts of business, but overreliance can produce catastrophic results if a key customer leaves.

Although there’s a good chance a team from the Big Ten, Atlantic Coast, Big 12, Southeastern, Pac-12, or Big East conference will win, there are certain to be many upsets along the way. Your coworker who filled out their bracket based on which team’s mascot they liked best will correctly predict the outcome of a game despite your having watched countless hours of ESPN bracketology.

The business world is no different. Large customers will unpredictably decrease their orders. A small client not even on the radar will drastically increase orders and become a key customer. These events can be heartbreaking for a business owner, but they can also bring new perspective and opportunity. Not to mention the rush that comes from seeing a small client overcome adversity and become a key customer, just like in 2018 when the underdog Loyola University Chicago basketball team (hailing from the Missouri Valley Conference) overcame big-name opponents in buzzer-beater fashion on the way to the Final Four. 

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