SITUATION

John Martin and John Rose decided to start a new business to manufacture noncarbonated soft drinks. They believed that their location in East Texas. close to high-quality water. would give them a competitive edge. Although Martin and Rose had never worked together. Martin had 17 years of experience in the soft drkik in-dustry. Rose had recently sold his firm and had funds to help finance the venture: hthwver. the partners needed to raise additional money from outside inw stars.

Both men %ere excited about the opportunity and spent al-most 18 months developing their business plan. The first paragraph of their executive summary reflected their excitement The -New Age' beverage market Is the result of a spectacukar boom In demand for drinks with nutri-tional value from environmental* safe ingredients and waters mat come from deep, clear springs free of chemicals and pollutants. Argon Beverage Corporation will produce and marker a fun line of sparkling fruit drinks, flavored waters, and sports drinks mat we of the highest quantyand purity.

These drinks have The same delicious taste appall as soft drinks while using the most healthful fruit Juices, natural sugars, and the purest spring water, The hallmark of the "PfewAges drink market With the help of a welideveloped plan, the two men mre successful in raising the necessary capital to begin their business. They leased facilities and started production. Hmever. after abnost two wars. the plan's goals %vele not being met. There %ere cost overruns. and profits %ere not nearly up to expectations.

1. What problems might have contributed to the firm's poor performance?

2. Although several problems were encoun-tered in implementing the business plan, the primary reason for the low profits turned out to be embezzle-ment Martin was diverting company re sources for personal use, even using some of the construction materials purchased by the company to build his own house. What could Rose have done to avoid this situation? What are his options after the fact?