Welcome to issue No. 082 of the Lever

Hiroshi Mikitani grew his company from 6 employees in 1997 to ~29,334 today.

So he knows a thing or two about business growth.

What he discovered was that your management systems break down at regular intervals, requiring a full rebuild.

He calls this the Rule of 3's and 10's.

When you are just starting out and only have three people on your team you don’t need complex systems.

Communication is easy, the tools are simple, and everybody knows what everybody else is doing.

But when you get to ten people everything changes. What worked before doesn’t work as well now.

And the pattern continues as headcount increases to 30, 100, then 300 plus.

There are a few things that will break predicably:

1. Communication

A leader’s span of control relates directly to Metcalf’s Law.

This shows how lines of communication increase exponentially as people are added into the system.

Communication overhead increases, and it becomes impossible for everybody to be in every conversation.

For a founder used to taking part in every decision this can be a frustrating byproduct of their company’s growth.

2. Process Failure

The systems and tools you started with are no longer fit for purpose.

Informal decision making and simple tools start creating inefficiencies and bottlenecks as things get more complex.

As the work increases so does the workload to maintain those legacy systems.

Duplication of effort leads to misalignment and quality issues begin to creep in.

3. Skillset Mismatch

New skills are required as companies grow.

Delegation, formal planning, and mindful internal communication is now required.

And a new type of employee becomes necessary - the middle manager.

Managing managers who manage results is now a thing.

As is ensuring alignment of culture and direction across divisions.

Not as satisfying as putting out fires but necessary when considering the big picture.

What to do about it?

Understanding that this WILL happen is the first step to make sure you are ready for it.

Recognizing these breakpoints allows you to proactively adapt, implement new structures, and manage growth effectively rather than being caught off guard by the INEVITABLE breakdown of your old systems.

Here are three ideas to get you started:

1. Understanding the New Roles

What is everybody’s job? What is YOUR job?

New lines of reporting and responsibility need to be drawn and a clear understanding of who does what.

Without this crucial step you end up with everybody doing everything. Or nobody doing anything, as everybody assumes somebody else is doing it.

Clarity of purpose.

2. Systemic Improvements

This is the nuts and bolts component of managing this change.

You need to carefully evaluate your existing processes, simplify where possible, and automate wherever you can.

You probably need new tools and you may need external support to help implement those tools.

But it all starts with a deep understanding of what and how you deliver value.

Your unique process.

3. Clear Communication

I get a kick out of people who call themselves CEO’s but don’t actually have any employees.

The main job of a CEO (a real CEO) is providing direction while maintaining cultural alignment.

Which is simply communication.

Systems are needed to keep your finger on the pulse of the company so strategic decisions can be made. Then systems of clear communication put in place to keep your team aligned.

Clear communication.

Understanding that your systems WILL break is a strategic advantage.

If you recognize when you are approaching a breakpoint (or you are already way past it) you can rebuild with a forward looking approach.

Don’t just rebuild for ten people. Rebuild for thirty.

That way you will have future-proofed your systems until you reach that next milestone of 100.

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