Shrinking To Grow: How Future-Focused Leaders Reshape Companies

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When Steve Jobs returned to Apple in 1997, he found a company that had lost any clear sense of what it was trying to make. Apple sold dozens of different computers with names like the Performa 5200CD, the Performa 5215CD, and the Performa 5260CD. Some were designed for homes. Others were intended for schools. Still others were for small businesses. The differences between these computers could be hard to explain, even for the people who worked at Apple. Years of trying to cover every market had left the company with a product line that served almost everyone and stood for almost nothing.

Jobs spent weeks reviewing the portfolio with Apple’s product teams. In one of those meetings, he finally walked to a whiteboard and drew a square divided into four boxes. Across the top, he wrote “Consumer” and “Pro.” Down the side, he wrote “Desktop” and “Portable.” Apple would make one great product for each box. Everything else would go.

That story has become one of the most famous examples of strategic clarity. Faced with overwhelming complexity, Jobs reduced the company’s product strategy to a picture anyone could understand. Yet the four boxes are even more powerful as an example of how future-focused leaders bridge the Now to the Next.

They shrink to grow.

Apple was already shrinking in a more familiar way. In March 1997, the company announced thousands of layoffs as it struggled with falling sales and mounting losses. Those cuts were necessary. They reduced expenses and gave Apple more time to survive. The four-box strategy did something different. Jobs had a clear idea of the company Apple could become. Then he began removing the products, projects, and commitments that didn’t belong to that future.

One form of shrinking improved the company’s performance in the present. The other began building a bridge to the future.

Becoming More Efficient

The idea of shrinking to grow is a seemingly paradoxical concept that has grown in popularity over the last thirty years. In 1996, German management consultant Jürgen Kluge published Shrink to Grow: Lessons from Innovation and Productivity in the Electronics Industry. Kluge argued that companies could improve their competitiveness by simplifying their operations, eliminating unnecessary complexity, and concentrating resources around the parts of the business with the greatest potential.

Management consultants folded the idea into the logic behind the staff cuts they recommended. McKinsey included shrinking to grow among its “Ten Rules of Growth,” advising companies to divest slower-growing businesses and reinvest the proceeds in more promising ones.

The phrase became particularly helpful for execs looking to put a positive spin on bad news. A company eliminates several thousand jobs, reduces management layers, and promises that the resulting savings will allow it to invest in growth. We’re getting smaller now, leaders explain, so that we can become stronger later.

And while there’s nothing wrong with improving productivity in the near term, it’s also a completely present-focused approach to shrinking.

When leaders start with the performance of the current business, they tend to ask familiar questions. Where can we take out cost? Which units are underperforming? How can we become more efficient? Those questions can produce a leaner and more profitable company. But they rarely reveal what the company is trying to become. That’s especially true when the solution is an across-the-board reduction. If every function loses ten percent of its people and budget, the organization that emerges is essentially just a smaller version of the one that went in. The company is leaner, but it’s not any meaner.

That’s not shrinking to grow. That’s shrinking and hoping growth comes later.

Becoming the Future

Shrinking to grow is about making the company look more like its future. A real shrink-to-grow strategy carries an opinion about where the world is headed and the kind of company that will thrive there. It concentrates the abilities the organization will need, creates room to prepare for possibilities that are still emerging, and removes commitments that keep pulling people back toward the past. The result isn’t simply a smaller company. It’s a company with more of its energy pointed in the same direction.

Future-focused leaders start that kind of exercise with a different set of questions. What abilities do we need to concentrate if we’re going to win in the future? What potential futures do we need to prepare for? What are we willing to stop doing because it’s tying us to the past? They picture the organization they’ll need in the world ahead, then work backward to determine what deserves greater focus and what’s become an obstacle. Instead of treating growth as something that happens after the cuts are finished, they use the cuts themselves to begin reshaping the company.

That was the real brilliance behind Steve Jobs’ deceptively simple four boxes. He recognized that Apple’s advantage didn’t come from its ability to manufacture the widest possible variety of computers. It came from a small collection of superpowers: integrating hardware and software, using design to make technology feel human, and creating products whose features added up to a coherent whole. Apple’s product portfolio was diluting those superpowers. Every additional model that Apple produced competed for the same design talent, the same engineering attention, and the same marketing support. By reducing the portfolio, Jobs could concentrate the abilities Apple would need to become great again.

At the same time, Jobs was preparing the company for a future he couldn’t fully predict. In 1997, no one could have described the precise path from the original iMac to the iPod, iPhone, and iPad. Apple needed enough focus to build each new capability as the opportunities emerged. The four boxes gave the company room to move. They reduced the number of commitments inherited from the past and preserved more of Apple’s energy for what might come next.

His approach also reflected a deeper belief about design. A small product portfolio wasn’t a concession to limited resources. It was an act of curation. Choosing what to leave out is part of the work of great design. Most computer makers offered customers a wide range of good, better, and best options. Jobs wanted Apple to exercise judgment on the customer’s behalf and offer the product it believed was right. His approach was about curating, not being comprehensive.

That drive for curation can extend well beyond products. Companies make curatorial choices when they decide which customers they’re best equipped to serve, which capabilities they need to own, which acquisitions deserve integration, and which priorities genuinely merit the organization’s attention. Each decision asks the same underlying question: What are we willing to stop doing because it’s tying us to the past?

To be sure, those choices can feel brutal in the moment. Customers are often more attached to the present than a company can afford to be. Apple discovered that when it decided to remove the headphone jack in 2016 from the iPhone 7. Millions of people had wired headphones they liked and little interest in carrying an adapter. But Apple had already concluded that the future of personal audio would be wireless.

Cutting to grow can still be painful. After all, the past rarely becomes worthless all at once. It continues generating revenue, serving loyal customers, and rewarding people who have spent years learning how to make it successful. It can be painful to walk away from all that. Netflix learned that the hard way when it tried to leave behind its DVD business.

Two Kinds of Shrinking

Netflix’s red-envelope service had transformed the way Americans rented movies. It offered a huge selection without the trip to a video store or the threat of late fees. The model worked remarkably well, and it remained a substantial and profitable business even as streaming began to emerge.

The company launched its streaming service in 2007. For several years, it operated both its DVD and streaming businesses together. For customers, DVDs and streaming looked like two convenient ways to access the same entertainment. But inside Netflix, they were becoming increasingly different operating models. DVDs depended on warehouses, postal logistics, and the careful management of physical inventory. Streaming depended on software, licensing, data infrastructure, and a much faster pace of experimentation.

Founder Reed Hastings could see where the industry was headed. In 2011, he tried to separate the DVD operation into a new company called Qwikster. The execution was terrible. The name sounded strange. Customers learned that they’d need separate accounts, separate queues, and separate bills. The market revolted and Netflix abandoned the plan a few weeks later.

Still, the episode revealed the future Hastings was trying to build. He wasn’t separating DVDs because the business had stopped working. He could see that DVDs and streaming were becoming organizationally incompatible. Keeping them bound together would make it harder for Netflix to move into the future. Qwikster failed as an initiative, but Netflix continued shifting its capital, talent, and attention toward streaming. It mailed its final DVD in 2023.

During those same years, Blockbuster focused on shrinking for operational efficiency. As fewer customers rented movies in stores, the company closed underperforming locations and reduced its physical footprint. Those decisions made sense. Demand was falling, and Blockbuster had more stores than the market could support. But Blockbuster’s downsizing didn’t set it up for the future. In his final letter to shareholders, CEO Jim Keyes described a strategy of delivering entertainment “whenever, however, wherever and in whatever format” customers wanted. Stores, mail, kiosks, retail, and digital all had a place in the plan. Each of those channels consumed resources and attention without forcing the company to choose what kind of organization the future required.

Blockbuster shrank its stores because its present was getting smaller. Netflix shrank its DVD business because it had chosen a different future.

Strategy Is About Sacrifice

To be sure, future-focused companies still need experiments. They need side projects, prototypes, and small bets that allow them to learn about new opportunities. Preparing for the future often means exploring several paths at once. That said, the discipline lies in recognizing the difference between an experiment and a commitment. A company can explore widely while remaining highly selective about what it scales, protects, and allows to define the organization.

When he was Chief Creative Officer of Target, my friend Todd Waterbury used to remind his colleagues about one hard truth: strategy is about sacrifice. If you haven’t made choices about what you’re not going to do, then you haven’t made a choice at all. That’s easy to forget in organizations where every attractive opportunity becomes another priority. The future always demands investment. Sometimes the first investment is the willingness to leave something behind.