Jones Soda loses its cool

Not so long ago, Jones Soda was tres cool, but an ill-advised expansion has caused a need to lay off 40% of its staff.

The 21-year-old cult soda company's struggles are a microcosm of the challenges facing small companies in a weakening U.S. economy. With consumer spending down and credit tight, any misstep becomes a potentially fatal mistake.

"Given the financial crisis we're in, you have to preserve cash," CEO Stephen Jones said. "Cutting back people is a horrible thing to go through, but you do it as a result of strategy. And my strategy is to focus on the core of what Jones Soda is."

Although that statement lays the blame, predictably, on the economy, the problem appears to be that Jones tried to expand in ways that undercut the brand's image. First, the company, whose distinctive glass bottles were part of the brand appeal, introduced cans. Then they went head-to-head against Coke and Pepsi in the mass market.

Jones told FSB he would grow the brand more efficiently as it continued to penetrate big chain grocery stores, beefing up his company's distribution network and sales staff.

Unfortunately, those tactics - which included pushing Jones' canned soda into new markets - backfired in an already faltering economy and an industry that has seen better days.

The soft drink market is in decline -- three years in a row of declining sales. It might be better in such a market to be a niche product with a cool image that can command a premium price than to chase after volume. Time will tell if Jones can get its cool back.