The Rule of 3 & 10
The most insightful management lesson I've learnt & the one most managers miss!
(Writer’s note: Substack published this post before I could add the note, but just wanted to say a huge thanks for the 75+ people who signed up to Super Founders Club this week! I hope you enjoy the post!)
In the last 15 years of doing business one of the most common mistakes I’ve seen executives make is them simply not knowing about, or not wanting to adapt to The Rule of 3 & 10, for example:
Your once dynamic ‘All Hands’ weekly team meeting that worked so well when you were under 10 people now somehow becomes a chore at 15+ people….Why? The Rule of 3 & 10
The Managing Director who excelled for the first 2-years when building the team from scratch, implodes around the 40 person mark….Why? The Rule of 3 & 10
That inherent creativity & innovation your business used to have seemingly disappears at 100+ people….Why? The Rule of 3 & 10
Your company vision/mission hasn’t changed, yet at 200+ people you start hearing that people feel lost & no longer understand the direction the company is headed to….Why? The Rule of 3 & 10
As such given its impact & how knowing the rule helped me so much as a manager, I’ve actually decided to structure this entire site/newsletter around it! But more on that later!
So what is The Rule of 3 & 10?
Conceived by Hiroshi Mikitani, CEO of Rakuten (a.k.a The Japanese Amazon.com) and passed on in an interview between Phil Libin, CEO of Evernote & Tim Ferris, Author of ‘The Four Hour Work Week’ they define it as follows:
"The Rule of 3 & 10": Every time a company triples in size, everything breaks."
Mikitani grew Rakuten from the ground up, and today it has roughly 12,000 employees. He noticed that from one to three employees, from three to 10, from 300 to 1,000, etc. (the rule rounds up to multiples of 10 for ease of understanding), that everything stops working as it should.
"And by everything he means everything," Libin tells Ferriss. This includes how the company handles payroll, how managers schedule meetings, how teams communicate, how it budgets, and how its hierarchy is balanced.
The problem, Libin says, is that many CEOs of rapidly growing startups "blow right through these triplings without even realizing it."
Libin, using his own company as a hypothetical example, tells Ferriss: "We're at 400 people now at Evernote. And when I really think about it, it's like, OK, we're at 400 people now, but some of our processes and systems have been in place since we were 30 [people]. So we kind of skipped a few steps. And everything is creaky and broken, and you really have to try to adjust."
Regardless of where your company is in its life, being aware of the Rule of 3 and 10 is "super eye-opening," Libin tells Ferriss. "That's one of the most actionable pieces of advice I've gotten."
What’s the theory behind The Rule of 3 & 10?
So one of the the reasons why ‘everything breaks’ when the team size goes from 3 to 10, 10 to 30, 30 to 100, 100 to 300, 300 to 1,000, etc. has to do with Metcalfe’s law.
Taken in this context, Metcalfe’s law explains that as the team size increases so does the number of communication lines between each team member - quite dramatically so!
Roughly every time the team size increases by 3, the number of communication lines increases by 10, meaning that our own management processes most likely needs to evolve 3 times faster than we originally had planned for!
Which is why ‘The Rule of 3 & 10’ helps as it shows when we have potentially reached one of these triplings, meaning that it’s now most likely time to make necessary changes!
How to incorporate The Rule of 3 & 10 into your business playbook?
Personally speaking, I found that simply knowing this rule & explaining it to my team helped give us all more context as to why previously well-functioning processes, teams or individuals seemed to no longer be working.
Something that also helped reduced inertia from these managers to make management changes as they realised it wasn’t due to them failing, but actually due to growth they had helped instil!
So now to keep growing they simply needed to re-examine whether their old management processes still applied at this new 3/10 level!
But as a business operator one thing I will encourage you to do is to view ‘The Rule of 3 & 10’ from a few different angles, such as:
Company Angle: Given that the overall headcount of your business will always be growing faster than any one department, this means that as an operator you will most likely encountering these 3/10 levels faster than anyone else. So you need to be constantly assessing whether it’s time to upgrade company wide management practices i.e. internal communication, HR systems, Financial Systems, etc. to catch-up.
Department Angle: You also need to look at these levels from a individual department perspective as with team sizes quickly growing from 3 to 10 to 30, etc. both their own ways of working & inter-department ways of working will frequently be changing!
Manager Angle: Finally, you also need to analyse all of your Managers, as you may see them struggling to adapt as they go from managing 3 to 10 to 30 people, et. Or vice versa you may see big-shot hires you take on struggle, as the team size is different from what they are used to but they don’t want to change their management style to accommodate.
How will Super Founders Club take The Rule of 3 & 10 into consideration?
In most management literature, rarely do they talk about how specific learnings apply to different sized companies & teams. As such here in Super Founders Club everything we do will factor in these consideration, for example:
Management Playbook Articles: In all the articles I’ll do my best to call out how different processes work at different levels & I’ll be writing specific articles that talk about how to address certain issues at that level only!
Podcast Interviews: For all interviews I’ll be making sure to ask our guests to explain what size their business is & I’ll be doing my very best to try to interview business operators who come from all different business sizes for you to learn from.
Super Founder Surveys: In our surveys, we will make sure to answer qualifying questions about team & company size, so that you can better understand what tools/resources best fit your particular stage & not a company larger/smaller than you!
To help, we will use the below company size classifications based on team sizes found in ‘The Rule of 3 & 10’:
Wrapping Up
I hope you find ‘The Rule of 3 & 10’ just as insightful & helpful in your day to day management work as I do!
As while seemingly simple/obvious, somehow it’s a rule that people ‘blow right through without even realising’! So hopefully the above helps you become just that bit more super!
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And please do think about forwarding onto a friend or team mates who you think would benefit from knowing about the rule!
Have a super day!