Just about everything was headed in the wrong direction. In Apple’s fiscal year ending September 26, 1997, the company lost a whopping $816 million. Its annual revenues had shrunk to $7.1 billion, down precipitously from a peak of $11 billion in fiscal 1995. The steady erosion of Apple’s business had punctured investor confidence, and the stock price since 1995 had lost nearly two-thirds of its value: a block of shares purchased in late 1995 for $3,000 was now worth roughly $1,000.

These were the glory years for the PC industry; 80 million personal computers were sold in 1997, up 14 percent from the year before. Sales of Macs, however, had dropped by 27 percent, to a mere 2.9 million machines, giving Apple a minuscule 3.6 percent sliver of the market that year.

Think Different also bought Apple some precious time at a moment when the company had little of tangible value to show off.

Steve knew, of course, that he would eventually have to deliver products that lived up to the campaign. But he didn’t have them in the fall of 1997. The campaign offered cover while Steve and his team began the hard slog ahead.

Lesson: Get rid of the things from the past that are not working. Sunk cost fallacy.

Steve was busy throwing out all kinds of pieces of the old Apple.

The restructuring touched every corner of the company. Out went the Newton and eMate product lines, and the stores and engineering and marketing groups that supported them. Out went the contracts that licensed the MacOS to the clone manufacturers.

Steve hated the idea of having his operating system in the hands of others, and he had refused to sign on as iCEO without the promise that he could shut down the clones.

This was the most expensive of the many decisions Steve made in the course of stabilizing the company.

To avoid the litigation that would naturally arise from Apple abrogating the contracts, the company had to pay the clonemakers to disappear quietly. The most successful of these was Power Computing, which had commandeered a 10 percent share of the market for MacOS-compatible computers. Apple paid $110 million in cash and stock to acquire the company and hire some of its engineers.

Out went the inventory. In the nine months after Tim Cook arrived, Apple reduced its inventory from $400 million worth of unsold, unwanted Macs down to $78 million. Cook was responsible for perhaps the most dramatic example of Steve’s hurry to rid himself of the burdens of Apple’s recent past: the bulldozing of tens of thousands of unsold Macs into a landfill in early 1998.

Finally, out went another 1,900 employees. All in all, Anderson had taken the company from 10,896 full-time employees down to 6,658.

Steve’s narrow determination was critical. He would do absolutely whatever it would take to turn this company around. He was all in, and working as hard as anyone. “It was pretty bleak those first six months,” he told me later. “I was running on vapor.”

A few months before Steve came back to Apple, I asked him what he thought Apple’s top priority should be. Should it be a new operating system, now that Avie Tevanian was there to create it?

“Not at all,” he replied, with a forcefulness I hadn’t been expecting.

“What Apple needs more than anything is to ship a great new product, not necessarily some new technology.”

Strategy

This time, Steve didn’t immediately set out to solve everything with the introduction of some groundbreaking new machine. This was a big change from what he’d attempted at NeXT and at Apple the first time around. Instead, he laid out a plan in broad strokes for the company’s entire product line.

Before Steve would ask his engineers to come up with a particular new product, he wanted to be sure they understood how it would fit into Apple’s overall plan. He wanted everyone working from the same playbook, and he wanted that game plan to be crystal clear. He couldn’t afford any of the strategic confusion that had hampered the development of the NeXT computer.

The key was to simplify Apple’s ambitions so that the company could sharply focus its substantial engineering talent and brand equity on a few key products and broad markets.

Steve set out to show how Apple could transform itself into a profitable company while offering no more than four basic products: two separate models of desktop PCs, one for consumers and one for professionals; and two separate laptop versions aimed at those same constituencies.

That’s it. Four quadrants, four product lines.

No more redundant engineering efforts, extraneous manufacturing processes, or sales pitches aimed at tricking consumers into buying unnecessary features. With only four basic products to design, Apple’s engineers and industrial designers could invest the time and effort to make their hardware and their software distinctive. This critical decision was as controversial as anything Steve did during this period.

Employees were outraged that their pet projects, including some truly valuable technologies that Apple had been developing for years, were being cast aside. Some technologies provided consumers with a tangible benefit, but if they didn’t fit into Steve’s quadrant structure, they had to go — the institution, he decided, could only focus on so much.

The quadrants put Apple on the exact opposite course of the Windows PC manufacturers, who were busy churning out all manner of unremarkable, albeit faster and more powerful boxes.

The quadrants returned Apple to its historic mission: to serve the high end of the consumer and professional markets with leading-edge products.

What the quadrant strategy wasn’t is equally important. It was not an effort to solve all problems with one insanely great machine. Steve had been twice burned by that strategy. He had developed enough cautious wisdom to see that breakthroughs were not the solution now.

Apple’s customers—past, present, and potential—would first have to be shown that the company would survive, that it knew how to consistently produce and deliver distinctive products, and that it could reliably turn a profit.

Only after that was accomplished—and Steve was the first to admit that it would take several years—could he think about how to exploit emerging technologies to break new ground again.

From: Becoming Steve Jobs