The 3x/10x Principle
Do the systems running your business look like this?
Hiroshi Mikitani is the CEO and founder of Rakuten, a Japanese e-commerce giant. Growing Rakuten from a one-person startup to sales of over 713 billion yen in 2015 has given him unique experiences about building a company.
One of his most valuable insights is the rule of 3 and 10, or the 3x/10x principle. This applies to companies of every size, from start-ups to multi-billion dollar corporations.
Every time your business grows 3x or 10x, you have to redesign all the systems and processes in your company.
You have to change how you do everything.
Growing pains
Your business can outgrow its systems like your children outgrow their clothes. You wouldn't send your 11-year-old daughter to school in the same uniform she was wearing when she was 5.
If your sales have tripled it might be that you now have 3x as many clients. You might have grown your product range by 3x. Or both.
But to keep control of 3x the number of products you need a more comprehensive inventory system. Or a more effective order management process.
To look after three times as many clients you might need to change how you handle new enquiries or update your customer service processes.
If your company's USP is how fast you respond to your clients but your processes weren't built to cope with the number of enquiries that you're in trouble.
If your invoicing system is cranky, slow and liable to errors then it's time to change. And if you've grown your team by 3x you'll need to look at your systems for HR, HSE and finance too.
As you grow you need to stay focused on the core of your company and the unique values that have made it so successful. This becomes harder to do as you battle with systems that you've outgrown and are no longer fit for purpose.
But of course, the only thing that you can't 3x is time. Working harder and faster for longer isn't sustainable. Time spent fixing preventable problems caused by ineffective, malfunctioning systems is gone forever.
Sometimes 3x can happen overnight. If you buy out a competitor you may have 3x the number of clients, 3 x the staff, 3x the locations and 3x of everything else. Then it's pretty clear that you'll have to change how you do things.
Unfortunately, most people don't know about the 3x/10x principle. Most of the time you grow gradually and you go past the 3x point without noticing that anything's amiss. You might grow 5x, 6x or even more, before the problems are so severe that you're forced to take action. Your overloaded systems may have been creaking at the seams for a long time but it's only when disaster looms that you recognise the need to change.
The longer you leave it the worse it gets.
This kind of wholesale, "scrap it and start again" system replacement can be hard to do but it's essential. It can be tempting to put a quick fix in place but this means that you're going to have to come back to this sooner rather than later.
Changing systems can be painful so why not make this comprehensive? You can choose to be reactive or proactive. Working reactively will always be more painful.
How to start
Give yourself and your team some breathing space. Before you dive into what's going wrong, start by asking "what is this process there to do?"
It can be surprising how many different ideas people can have about what a particular system is there to do.
If you're trying to decide if you need to make a change, ask "how much more could this take before it would cause a problem?" If you think that you're currently at 80% of what it could handle then it's time to change. If you've got the scope to handle twice what you're doing now then it's ok for now.
Another way of working out if you need to change a system is to ask "if we were setting this up now, would we do it the same way?" This usually clarifies the situation.
Here's the next question to ask. "If we needed to design a system to deal with 3x what we have now, what would that look like?"
As you go through this you may find that one thing leads to another. Peeling one layer of the onion starts to reveal another that needs attention.
The Good News
Here's the good news about the 3x/10x principle. Once you know about it you can plan for this in advance. You don't need to wait until the Titanic is about to hit the iceberg.
Once you've implemented a new system that you know will be good for your next 3x of expansion you can start to plan the next update when you get to 2.5x. That way when you get to your next 3x level you're ready to go.
If your turnover is £1.5M and you're still doing things in the same way as you were when your sales were only £500k then it's time to change. But once you've made the change you know that the new systems you've put in place will be robust enough to get to the next 3x level at £4.5M.
This is for people too
3x/10x applies to people too. If you find that your email has gone up by 3x then it's time to make some changes in how you deal with that. In the past couple of months, I've been travelling more than I did and I'm updating my personal systems to match. I want to make sure that I'm not held back because I'm not spending as much time working from my office as much as I used to.
If you know you’ve gone past the 3x/10x point with any part of your business it's time to refresh your systems. Then you can get back to helping more of your clients and get even more great work done.
More about 3x/10x
You can find out more about 3x/10x here and in Tim Ferriss' interview with Phil Libin here.
A lot of the work that I do with my clients is redesigning systems so that they can get back to doing what they do best. If you need a 3x/10x review and you're interested in finding out how I can help please contact me here.