Hello my friends.

Hiroshi Mikitani, the CEO of Rakuten one of the world’s largest online retailers, created the rule of 3 and 10 as he grew his company from inception in 1997 to over 10,000 employees today.

During those two decades of growth, Mikitani discovered noticeable changes in his company as he hired new employees to fill the roles that the growth demanded. In fact, he recognized that after certain levels of employee growth, the company would change so much, it was as if he were part of a completely different company. After experiencing these changes many times over, he defined it and called it the rule of 3 and 10.

Mikitani discovered that these dramatic changes would occur at around the third and tenth step. In other words, when the company grows from 1 to 3 employees, it’s a completely different company. All the processes, procedures, organization and communication flow, roles employees play, and even the business model change so dramatically that everything needs to be addressed and reset. When the company grows from 3 to 10 employees, it changes again; 10 to 30 employees, it’s changes again; 30 to 100 employees, it changes again; 100 to 300, again and so on.

If the rule is ignored, running the business becomes more and more difficult and expensive considering the company is following outdated and inefficient policies and procedures. He also mentions when a company ignores the 3 and 10 rule and passes a second level without making changes, there’s a multiplicative effect to the cost of doing business and it becomes even more difficult and expensive to fix.

Small business owners often ignore the rule of 3 and 10 partly because they’re not aware of the 3 and 10 rule and considering they are working in the business every day, the company does not appear any different from one day to the next. It’s like when I look at myself in the mirror each day. I don’t look any different than I did yesterday, however when I’m looking at pictures of a family vacation from 15 years ago, it reminds me that I’m getting old. I am changing every day and so is your company.

So if your company passed one of the 3 and 10 levels, even if you don’t recognize any change, it’s important to be aware that your company may have dramatically changed and the business model and strategy you’re following may no longer be as effective.

Here are some signs that your company may be experiencing the effects of ignoring the Rule of 3 and 10:

You consider the idea of shrinking the size of your business because you remember it being easier to operate when it was smaller;
You have far less cash even with increasing revenue;
You are spending far more of your time addressing employee and human resource issues;
You no longer feel as excited and energized about going to work each day;
You are spending more and more of your time on energy draining activities and less time on performing the work that made your business a success in the first place;
Your employees are constantly coming to you with questions and problems looking to you for the answers.

Here’s 5 steps to overcome breaking through one or more of the levels of 3 and 10:

Accept that your company is no longer the small business that it once was and accept that changes need to be made
Acceptance is the first step to recovery so acknowledging that your company has changed will allow you to take time to evaluate the “bigger picture”. It will allow you the opportunity to stop working “in” your business and start working “on” your business
Join a mastermind group
Part of the reason why your business is struggling is because you are not surrounding yourself with like minded people who are independant from your business. People who are not afraid to critique, push you, make you accountable and offer sage advice because they are experiencing or have experienced similar situations.
Create a “board of directors”
When you are consumed with the day-to-day activities of the business, it is very easy to make poor decisions and just outright miss opportunities especially when your company is growing. Create a group of trusted advisors similar to a board of directors to force you to think and present on the bigger picture of the company and for added accountability. Consider adding a person or two from your mastermind group, your outside CPA or tax accountant and any other consultant or individual that knows your business who can help you make better company decisions.
Ask more questions
Your employees and your trusted advisors want to help you so ask them for their advice. Simple open ended questions such as “if there was one change we could make in this company, what would it be?” or “what can I do to make your role in this company easier to accomplish?” After they answer that, follow up with more questions. Become an expert in asking questions.
Listen and take advice
The Dali Lama once said “When you talk, you are only repeating what you already know. But if you listen, you may learn something new.” Listen to what your mastermind is telling you, listen to what the members of the board are sharing with you, listen to what your employees are suggesting to you. If you listen you will learn and you will be able to make the necessary 3 and 10 adjustments faster or you will avoid them completely.

These 5 steps will help you fix (and eventually avoid) falling victim to the rule of 3 and 10 and will allow you to get back to feeling excited about going to work everyday. By surrounding yourself with qualified people who can assist in warning you on potential problems and weaknesses in your organization and force you to remain accountable and focused on the “bigger picture” such as the vision and strategy of the company, you have created a surefire way to prevent your business from succumbing to the 3 and 10 rule.

I hope you have a great day!