Reference no: EM131384909

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 drink industry. Rose had recently sold his firm and had funds to help finance the venture; however, the partners needed to raise additional money from outside investors. Both men were excited about the opportunity and spent almost 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 spectacular boom in demand for drinks with nutritional value from environmentally safe ingredients and waters that come from deep, clear springs free of chemicals and pollutants. Argon Beverage Corporation will produce and market a full line of sparkling fruit drinks, flavored waters, and sports drinks that are of the highest quality and purity. These drinks have the same delicious taste appeal as soft drinks while using the most healthful fruit juices, natural sugars, and the purest spring water, the hallmark of the "New Age" drink market.

With the help of a well-developed plan, the two men were successful in raising the necessary capital to begin their business. They leased facilities and started production. However, after almost two years, the plan's goals were not being met. There were cost overruns, and profits were not nearly up to expectations.

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

Question 2 Although several problems were encountered in implementing the business plan, the primary reason for the low profits turned out to be embezzlement. Martin was diverting company resources 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?