25/12/2023
How Legal and Management Snafus Can Kill a Business
In 1990, Jamba Juice started in San Luis Obispo, California. The company, which sells smoothie drinks, got off to a good start, opened two more cafés in 1993, and now has hundreds of outlets all the way from Hawaii to Boston. In fact, Jamba Juice is somewhat unusual in that at one point during its growth, it obtained venture capital funding, which is normally reserved for high-tech or biotech firms. Apparently, Benchmark Capital, the venture capital firm involved, felt that smoothie drinks were a good bet.
In 1994, two entrepreneurs, Sean Nicholson and Aaron Souza, who had watched Jamba Juice grow, decided to try their own hands at opening a smoothie restaurant and started Green Planet Juicery. Nicholson and Souza were impressed with Jamba Juice and followed its lead in several areas. For example, Jamba Juice located its cafés near college campuses, where smoothie drinks were popular, so Green Planet’s first café opened near the University of California, Davis. The café was a hit. In months, it was earning a profit, and its first-year sales figure exceeded $500,000.
Three years later, Green Planet Juicery was broke. What went wrong? It wasn’t the market for smoothie drinks. In fact, Jamba Juice is growing faster than ever. Instead, what killed Green Planet were legal and management snafus. Here’s the full story.
First, Green Planet tried to grow too quickly. Unlike Jamba Juice, which waited three years to open its second café, Green Planet moved more quickly and opened three additional cafés within two years of its founding. In the process, it abandoned the idea of locating near college campuses and opened all its new outlets in nearby Sacramento. Two of the three new outlets struggled and, in hindsight, were poorly located. The first was located near a high school (where the students were not allowed to leave the premises during lunchtime), and the second was opened near a discount store. The third outlet was a hit and rivaled the sales of the original café. To open it, though, Green Planet had to form a partnership with an investor and received only a portion of the café’s profits.
Second, at the same time Green Planet was struggling with its growth, Jamba Juice sued Green Planet for copyright infringement. According to Jamba Juice, Green Planet copied from its menu or other literature descriptions of such nutritional smoothie additives as algae, tofu, bee pollen, and brewer’s yeast. Jamba Juice also alleged that Green Planet copied its promotional slogan for nutritional additives: “If you’re green inside, you’re clean inside.” Green Planet admitted guilt and settled with Jamba Juice for an undisclosed sum.
Green Planet never fully recovered from these blunders and eventually went out of business. Its story provides a vivid reminder of the damage that can be caused by legal and management snafus, especially early in the life of a venture.
© Entrepreneurship
