Building a business is exciting but also has its challenges. As your company grows, the processes, systems, and organisational structures that once worked, may no longer be effective. This is where the "Rule of 3 and 10", a concept by Japanese entrepreneur Hiroshi Mikitani, founder of Rakuten, becomes invaluable.
What is the Rule of 3 and 10?
The Rule of 3 and 10 is a simple yet powerful framework that suggests a business must reevaluate and redesign its operations whenever it triples in size. According to Mikitani, at every multiple of three and ten (e.g., 3, 10, 30, 100, 300, 1,000 employees or revenue milestones), the complexity of the business increases exponentially, requiring significant changes to avoid inefficiencies and bottlenecks.
Why It Matters
As businesses grow, their needs evolve. What worked for a small startup may no longer apply to a medium-sized enterprise. When a business hits key growth milestones, its processes, organisational structure, and management style need to adapt. Failure to address these transitions can result in operational inefficiencies, communication breakdowns, and stagnation. When you don't grow your internal operations with the business, HR debt builds. HR debt isn't something any business wants, but can quickly become too much due to unresolved HR inefficiencies that arise when people-related processes do not scale in sync with the business.
Key Milestones and Challenges
Let’s break down the Rule of 3 and 10 at different stages of growth:
- From 1 to 3 employees:
- Transition from a single founder to a small team.
- Need for basic delegation and defined roles.
- Introduction of simple systems for communication and task management.
- From 3 to 10 employees:
- Clear role definition becomes essential.
- More structured management practices are needed.
- Communication tools and processes must be formalised.
- From 10 to 30 employees:
- Hierarchies and middle management emerge.
- Company culture becomes more complex to maintain.
- Decision-making processes may require additional layers.
- From 30 to 100 employees:
- Specialised departments form.
- Standard operating procedures (SOPs) need documentation.
- More sophisticated financial and HR systems are required.
As companies scale through these stages, having an effective HR tech roadmap can help streamline operations and build good foundations for the future. A well-planned HR tech roadmap, ensures that HR processes are automated and evolve with growth milestones and align with strategic business objectives.
How to Apply the Rule of 3 and 10
To successfully navigate these challenges, business leaders should:
- Anticipate Growth Pain Points: Regularly assess current processes and identify potential bottlenecks.
- Invest in Scalable Systems: Choose tools and technologies that can grow with your company.
- Develop Leadership Skills: As the team grows, leaders must evolve from hands-on managers to strategic visionaries.
- Maintain Agility: Be ready to adapt quickly and embrace change as the company scales.
- Evaluate Organisational Culture: Ensure core values are upheld despite increasing complexity.
Conclusion
The Rule of 3 and 10 is a valuable guideline for entrepreneurs and business leaders aiming to scale their organisations effectively. By recognising that growth brings inevitable change, leaders can proactively adjust their strategies, processes, and teams to sustain long-term success. Whether you're at the startup phase or scaling to hundreds of employees, understanding this principle can help you navigate the challenges of expansion with confidence.
To ensure you're using the right HR technology to support your growth at every stage, have a look at our Stakkd HR tech database, where you can find hundreds of solutions to meet your business needs.
