How They Started Read online

  Opening the first store

  After driving the California coast to check out existing smoothie stores for ideas, Kirk was ready to open his own store under the name Juice Club. He bought a few industrial-grade blenders and started experimenting with smoothie recipes. For his founding employee in the smoothie business, Kirk looked no farther than his longtime romantic partner, Kevin, then 24, who was studying business at California Polytechnic State University at San Luis Obispo.

  For the first location, the duo focused on the neighborhood around the Cal-Poly campus, figuring it would give the store good traffic from college students and faculty. There was only one snag: the pair had to find a landlord willing to rent them a retail storefront. Few shopping-center owners were enthusiastic about taking a chance on a couple of young kids with no retail experience.

  “Kirk was having a hard time getting landlords to pay attention,” Kevin recalls. “He’s 6’4” and kind of imposing, but they’d still look at the business model and think, ‘Maybe not.’”

  After months of pitching their plan to landlords without success, Kirk caught a break. An old family friend knew the landlord of one small shopping center near campus, Ferrini Square.

  The owner put them through their paces. How many customers did they anticipate? How much sales did they expect to do in the first year? Kirk said his goal was to do $2,000 a day at the store.

  The landlord was convinced, and the pair signed a lease for a small store. After fitting in the refrigerators and freezers needed to store the smoothie ingredients, Kevin recalls there was less than 800 square feet of retail space left.

  Next, Kirk cobbled together the money needed to build the first store, using his own cash flow from the triplex, as well as loans from friends and family. Construction was originally estimated at $170,000, but ran over and neared $200,000.

  Now that the store was taking shape, Juice Club needed someone who knew the smoothie business. For an operations manager and second founding employee, Kirk picked another aspiring young entrepreneur he’d met in the checkout line at Safeway: Joe Vergara, who was managing a local smoothie shop for a small chain.

  In creating the first store, Kirk and Kevin had a chance to indulge a personal passion for design and architecture. Every detail was belabored—the curve of the counter, the shade of white for the walls, the way wheatgrass was displayed in the case, the stain color on the wood floors. The effort paid off immediately, Kevin says.

  “People were invigorated as much by stepping into the space as by drinking the smoothies,” he says. “People started asking from the very beginning, ‘Wow—is this a chain?’”

  Cruel summer

  Juice Club opened on April 7, 1990. From the start, the store had a dozen employees, Kevin recalled, as the shop’s hours were long (7 a.m. to 11 p.m.). Kirk would often open the doors in the morning, while Joe would take the day shift and Kevin would arrive after classes at Cal-Poly to work and then close up. Business grew gradually but steadily, and within 60 days the employee count was closer to 30.

  “Team members in the early days, their job description was very simple—do whatever it takes to make the customer’s experience the best.”

  With essentially no initial marketing budget, Juice Club relied on word of mouth. Kevin noticed a trend: women would come in, have a smoothie, and then return with their boyfriends. From the beginning, Juice Club smoothies had sexy names such as Hawaiian Lust, Boysenberry Bliss and Pacific Passion, so there was a romantic angle to coming into Juice Club that worked to draw more customers.

  From Juice Club’s early days, customer service was a huge focus. In a company video, Kirk recalls, “Team members in the early days, their job description was very simple—do whatever it takes to make the customer’s experience the best.” Staff worked to build personal rapport with each visitor.

  This approach was paying off in a growing audience of enthusiastic, repeat customers. It seemed an auspicious time to open an eatery that sold cold drinks, as a hot California summer lay just ahead. Kirk was certain business would boom. But when June rolled around, the green Juice Club team got a nasty surprise.

  With the conclusion of the spring semester, the Cal-Poly campus emptied out as most students decamped back home for the summer. Most of the first customers were from the college; year-round residents in town had yet to catch on to Juice Club.

  Traffic at the store plummeted. The next two and a half months were nerve-wracking as the team strategized how to keep the shop going until the fall, when the students would return.

  While there were still some sales coming in, expenses had to be covered in part by Kirk’s rental income and family aid. To save money, staff was cut back to a skeleton crew, with one of the founders often holding down the early-morning and late-night hours alone, Kevin recalls.

  But aside from staff cuts, the founding team looked for positive ways to use the slow time.

  It was during this tough first summer that Juice Club launched a marketing program, selling reusable Juice Club-branded plastic mugs for patrons who didn’t want to create waste by getting Styrofoam cups. Soon, Kevin recalls, San Luis Obispo’s streets teemed with cyclists and joggers with Juice Club mugs clipped onto the outsides of their backpacks, essentially creating walking ads for the store.

  “We were both biting our nails a bit, Kirk especially,” says Kevin. “But I’ll never forget how keeping our game face on encouraged customers to keep coming back.”

  Inquiries were also made at the college, and Juice Club was added to a city tour Cal-Poly provided to new students during Welcome Week. This canny move would deliver prospective customers straight to the shop’s door at the start of school in the fall. Product quality was also under scrutiny, and Kirk worked to find relationships with the best fresh- and frozen-fruit providers to make sure the smoothies were the best tasting.

  Despite the financial stress, the team tried hard to maintain the upbeat, friendly atmosphere Kirk sensed was essential to setting Juice Club apart from other smoothie stores. The few customers that did come in were met by smiling, attentive staff and never guessed the company was experiencing a cliffhanger of a summer.

  “We were both biting our nails a bit, Kirk especially,” says Kevin. “But I’ll never forget how keeping our game face on encouraged customers to keep coming back.”

  The home office

  In September, school resumed, the weather was still warm, and word spread quickly about Juice Club. “Sales just exploded,” Kevin recalls.

  From their initial goal of doing $2,000 a day of business, Juice Club now often brought in five times that figure. At the end of the first year, sales were roughly $600,000, Kevin recalls, and the store turned a profit. Within two years, the annual figure would hit $1 million at the original store.

  As Juice Club’s sales volume grew, the small store quickly proved inadequate to house all the smoothie ingredients. Kirk and Kevin ended up renting a small house next door to Ferrini Square, which they used as living quarters and office. The garage served as overflow storage space for the store.

  It was decided the best way to grow Juice Club was through franchising. Kirk pinned up a large US map at home and put the first pin in San Luis Obispo. It took until 1992 to get all of the franchise paperwork squared away, and then the founders started visiting franchise trade shows to pitch their concept to prospective franchise buyers.

  To help drive their franchising effort, the trio brought on a fourth founding employee—another local resident and Cal-Poly acquaintance of Kevin’s, Linda Ozawa-Olds, who had just completed an MBA at the school. The house’s kitchen became her office while Kevin, who’d enjoyed his business-writing classes at Cal-Poly, wrote the four-inch-thick franchise operations manual in a spare bedroom.

  In a surprising twist, the young team with two gay men in leadership roles ended up selling their first franchise to a retired Marine colonel in his forties, Robert McCormick. The connection: he was a health and fitness buff, too. He opened the
first franchise store in Irvine, California, in 1993, and another pin went into the map at Kirk and Kevin’s house.

  By 1994, meetings with prospective franchisees were increasing and Kirk wanted a more professional-looking office. Juice Club took over an empty storefront next door to the store, outfitting it with wood floors and crown moldings. As word spread that Juice Club was franchising, top-caliber prospects began to visit the new office—a carload of Pepsi executives at one point, and even a member of the royal family of Bahrain, Kevin recalls.

  That same year, Scott and Celia Denig got a flat tire in San Luis Obispo, and wandered into Juice Club while they waited for a tire change at a nearby repair shop. The young couple ended up staying in town overnight to investigate the concept further, and opened the third store in Palo Alto, California, in 1994.

  Venture capitalists come knocking

  The accidental visitor to the Palo Alto Juice Club store would prove to have an even greater impact on Juice Club’s future. The wife of Technology Venture Investors general partner Bob Kagle came in for a smoothie and then, like so many women before her, came back with her husband. Kagle saw lines out the door and enthusiastic customers, and thought he had found the next Starbucks—an analogy that came readily to mind, as Kagle was also a Starbucks investor.

  “It seemed like everyone had a tremendous sense of affirmation about buying this smoothie,” he told the Los Angeles Times.

  Franchisees continued to sign up, and Juice Club had commitments for a total of 20 stores when Kagle led a $3 million investment round in Juice Club in late 1994. Also participating: Starbucks founder Howard Schultz.

  As they got to know the business, the new investors saw two troubling problems. One lay in the business model—because Juice Club was cash poor, it couldn’t provide franchisees with location build-outs or purchase the land under their stores, as many franchise chains do. The franchise fee Juice Club could ask under these circumstances was too low to generate the cash needed to build a robust franchise support team.

  Instead, Schultz wanted Juice Club to follow the same model as his company and own its stores. The funding round was delivered on the promise that Juice Club would stop franchising and use the money to build its own stores.

  A new name

  The other problem was the name. Schultz and other board members impressed upon the team that “Juice Club” was too generic and didn’t successfully convey all the qualities of the brand—health, fitness, fun, great service. Most importantly, it included no words that could be trademarked to help protect the brand’s identity from imitators. This was a problem the founders were well aware of, as they’d seen copycat smoothie bars popping up near their stores named Juice Bistro, Juice Bar, and more.

  The search for a new name would be a tortuous one. Two different ad agencies were employed to come up with a brand name and logo, one after the other, but their ideas were rejected. Finally, Kirk, Kevin, Linda and Joe decided to do it themselves. The pressure was on: new stores were being built and signage was on hold until the new name was chosen.

  “We were doing pretty sophisticated focus groups and marketing to button up what the brand meant, so we could change the name and launch the rocket,” Kevin says. “But it had to feel right.”

  The other problem was the name ... “Juice Club”was too generic and didn’t successfully convey all the qualities of the brand—health, fitness, fun, great service.

  They brainstormed. They went to the Cal-Poly library and looked through books, including dictionaries in other languages. Finally, they went out for fish and chips together and came to the Swahili word “jama”, which means “to celebrate.” This evolved into “jamba.” To go with the new name, they chose the now-familiar swirl, which represents a smoothie being mixed in the blender.

  Prepare for take-off

  After rebranding as Jamba Juice in 1995, the company quickly jumped to 30 stores. The following year, Jamba Juice made a valuable alliance with upscale-organic juggernaut Whole Foods Market. This allowed Jamba Juice to operate smoothie bars inside the grocery stores, creating a new channel for expansion.

  In the late 1990s, the company began adding more food to the menu, adding Jambola pastries in 1998, and a Souprimos soup line in 1999. As profits increased, the chain also returned to selling some franchises, while still keeping the majority of its stores company-owned. In 1998, the chain cracked 100 stores; in 2000, sales neared $100 million, but per-unit sales weren’t what they once were. Saturation had brought average sales down to about $324,000 a year, a report from Coriolis Research found. During this time period, the chain opened at least one store a week for several years running.

  By the turn of the 21st century, the founding team at Jamba Juice was departing. In 2000, former Burger King executive Paul Clayton was brought in as CEO. Kevin left in 2001 to go into architecture and design full-time, and Linda partnered with fellow founder Joe to run eight franchise Jamba Juice stores on the Central Coast, including the original store. Linda also taught marketing at Cal-Poly. By 2004, the overall Jamba Juice chain had grown to more than 350 units.

  To fuel this growth, over the years Jamba Juice raised an additional $44 million from venture investors, including Microsoft co-founder Paul Allen’s Global Retail Partners. It turned out that the investor group would need patience—Jamba Juice did not go public until 2006, a 16-year wait for the early investors.

  As it prepared for the IPO in 2005, Jamba Juice had 532 stores, of which just over 200 were franchises. Also in 2005, the first international Jamba Juice store opened, in the Bahamas. By this time, Kirk had also left the company.

  Jamba Juice went public in 2006 using a somewhat unconventional method: the company was acquired for $265 million by a publicly traded “blank check” acquisition company, Services Acquisition Corp. International, which was created expressly to buy up companies. SAC then changed its name to Jamba Inc. The maneuver allowed Jamba to skip the grueling investor “road show” that usually precedes an IPO and avoid making detailed financial disclosures.

  Where are they now?

  Flush with new cash from the IPO deal, Jamba grew quickly to over 730 units by 2008 and nearly $334 million in sales. But there was trouble brewing: Jamba racked up losses each year, hitting a high of nearly $150 million in 2008, just in time to confront a major economic recession.

  Jamba was in a poor position to withstand the downturn on the heels of its rapid growth and losses. CEO Clayton resigned and Safeway executive James White was named as Clayton’s replacement in late 2008.

  The company’s policy of owning most of its stores had come back to bite it, causing revenue to plummet, along with the company’s stock price. A re-franchising initiative found franchise buyers for more than 140 company stores, which generated franchise fees and cut the number of company-owned units. Revenue fell to $255 million in 2010, but losses also fell, shrinking to under $21 million.

  Turnaround efforts have focused on repositioning Jamba as a health and fitness brand with food for all three meals of the day. Hot beverages were introduced in stores for the cold months to shore up winter revenue. White also cut deals to license the Jamba name to grocery-goods makers to bring Jamba products, including smoothie mixes and fruit chips, to grocery shelves.

  By year-end 2010, comparable-store sales had stabilized. The company returned to profitability in mid-2011.

  One bright spot in Jamba’s recent struggles is that one founding employee returned to the fold. In 2009, Linda returned and, with her husband, bought and still operates nine Jamba franchise stores in California, including the original store.

  Pinkberry

  Creating a swirl in the market

  Founders: Hyekyung “Shelly” Hwang and Young Lee

  Age of founders: 31 and 39

  Background: Restaurant manager and architect

  Founded in: 2004

  Headquarters: Los Angeles, California

  Business type: Frozen yogurt shops

  Aft
er the turn of the 21st century, frozen yogurt was a fading American fad. By 2005, the volume of frozen treats produced in the US had fallen by half compared with 1990, the International Dairy Foods Association reported.

  Then along came two entrepreneurs from South Korea, former restaurant manager Shelly Hwang and architect Young Lee. They had a new twist on frozen yogurt that would win them wildly enthusiastic fans and help reinvent the category to suit modern tastes. But that triumph came only after the pair faced down problems including irate neighbors, unhelpful relatives and nasty lawsuits.

  School … and school of hard knocks

  Shelly came to the US in 1992 to study business at the University of Southern California. After she graduated, Shelly’s father put her in charge of an LA franchise restaurant he owned with some business partners. Then just 26, Shelly soon realized she was in over her head.

  The full-service restaurant had many different menus—steaks, pastas, desserts, a buffet. Shelly tinkered with the offerings, but customers were still confused. Was it a steak house? A pasta bar? Sales were only about $500 a day, she recalls. She lasted two years before the restaurant closed down.

  “I kept increasing the menu, instead of specializing it,” Shelly recalls. “I lost a lot of money—not my money, but our money. And after that, my father stopped supporting me.”

  Shelly next started a textile business, an enterprise that ultimately failed as well. She made many trips abroad while learning the business, especially to Italy. It was there, on a visit to the affluent northern Italian town of Reggio Emilia, that she says she encountered tiny, mom-and-pop frozen yogurt shops.

  The yogurt they sold wasn’t like sweet, heavy American yogurt—it was non fat, tart and often topped simply with fresh fruit. She learned that some of these small, utilitarian shops had been operating for 25 years or more. They were successful businesses on a small scale, Shelly saw, but the owners didn’t have the vision to build a chain.