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Last weekend I was with a bunch of friends from different industries. Over a few beers we chatted about the ups and downs of our week. One friend mentioned that his company was going through a restructure and a large number of jobs were going to be chopped. 

That’s when one of the other friends commented that no company has ever shrunk to greatness. This caused a lengthy discussion as each person tried to think of companies that had indeed shrunk or changed but were still here.

We all agreed that sometimes, companies need to shed underperforming brands, businesses, or geographic locations to free up resources and focus on more promising areas. This can involve selling off non-core assets, closing down unprofitable divisions, or exiting certain markets. Out came the smart phones as everyone searched for companies that had indeed done this.

Someone mentioned BP. After the Deepwater Horizon oil spill, BP was forced to divest assets to meet financial obligations and rebuild its reputation. This did lead to a stronger, more focused company. 

Another mentioned General Motors. GM unloaded its European car operations to Peugeot, streamlining its portfolio and focusing on other key markets.

But reading about these mega companies ‘shrinking’ didn’t feel the same, it was more a strategic change.

A round or two of drinks later, no one had found any articles on shrinkage as a growth strategy.

But the word growth was everywhere.

In fact, if corporate boardrooms had a swear jar, “growth” would be the word funding the CEO’s fourth vacation home.

It’s the magic mantra in every quarterly sales meeting, the rallying cry of every all-company meeting, and the reason your company just gave everyone a few share options instead of raises. Yet, somehow, despite this obsession with growth, companies keep flirting with the delusion that greatness can be achieved by… shrinking?

Let’s be honest, No company has ever shrunk to greatness.

One of the chaps commented that shrinking a company but expecting it to be successful is like trying to win the Tour de France by selling your bike and eating protein bars on the couch. Clearly alcohol was kicking in.

The friend that started the conversation said his company gave the spin: “We’re not cutting—we’re streamlining.”

This started more banter. We decided that what that really means is that “We laid off half the staff, hired a consultant who speaks exclusively in acronyms, and outsourced everything to someone’s nephew.”

So, by the end of the weekend we had all looked up the shrinking scenario and fed back our findings.

It became apparent that it’s efficiency theatre. Yes, costs go down. But so does morale, innovation, and—eventually—your stock price. Jim Collins, in Good to Great, found zero evidence that companies became great by cost-cutting their way to glory.
Let’s face it A chainsaw isn’t a strategy.

We decided that there’s this romantic idea of the “scrappy, underdog company” doing more with less.

But we shouldn’t confuse lean with corporate malnourishment. Startups innovate. Shrinking companies just release press statements about “restructuring synergies” 

Yes, Steve Jobs cut the fat when he returned to Apple. But he also tripled down on innovation. He didn’t say, “Let’s become a minimalist art installation.” He said, “Let’s invent the future—and charge you £1000 for it.”

One of the group had been through investment rounds with his company. He said investors love a good cost-cutting headline—until the next earnings report drops and it turns out your company now consists of three people, and a dream.

Harvard’s Michael Porter (a.k.a. Captain Strategy) warned us years ago: “Operational effectiveness is not a strategy.”

You can only cut so much before you’re just smaller and sadder. Eventually, you have to offer something other than “Hey, we’re still here!”

Final Thought from all the discussion:
We all came to the conclusion, rightly or wrongly that you had to grow or be bought (and gutted)

Shrinking might buy you time. It might make the next board meeting a little less awkward. But it’s not a path to greatness—it’s just a slower route to irrelevance.

Nobody has ever cost-cut their way to category leadership.
Nobody has ever laid off their marketing team and magically become Apple.
Nobody puts “strategic shrinkage” in the company mission statement—unless it’s satire.

The final word goes to the chap that changed a weekend social gathering into a lengthy business discussion. He decided that if your business plan starts and ends with, “Let’s get smaller,” it’s time to go ahead and print the T-shirts logo now:
          “Ask Me About My Eventual Bankruptcy.”

📚 Sources (Because Even Satire Deserves Citations):

• Collins, J. (2001). Good to Great.

• Isaacson, W. (2011). Steve Jobs.

• Porter, M. (1996). What is Strategy? Harvard Business Review.