Sambo's

Origins
Let's go back to the year 1957 and the town of Santa Barbara, California. Two recent college graduates, Sam Battistone and Newell "Bo" Bohnett, decided to enter the restaurant business together; their goal was to start a chain of restaurants using some of the techniques developed by Ray Croc, Dave Thomas, and other early fast food chain entrepreneurs and apply them in a manner that was family-friendly.
The pair decided to combine their names and use that as a restaurant name: Sam and Bo's, which was quickly shortened to Sambo's. They opened their first restaurant in 1957 in Santa Barbara, and it was an instant success due to its family-friendly sit-down dining environment and very low prices (one of the distinguishing characteristics of Sambo's). In 1958, Battistone was introduced to the children's story Little Black Sambo, written by Helen Bannerman in 1899. The story told the tale of Sambo, an Indian boy who goes into the jungle and loses his clothing to bullying tigers. But the tigers chase each other around a tree and eventually melt into butter, which Sambo puts on his pancakes and eats. Battistone and Bohnett decided to theme their restaurant around this children's story. They redecorated the restaurant and menus to match the art from the book and made pancakes one of their signature dishes. This choice was a bright idea, but it would come back to haunt the pair.
Rapid Success (1960-1978)
With this retheming, the restaurant chain began to take off. The second and third Sambo's opened in California in 1959, and the chain quickly spread, as it occupied a market niche that was largely unfilled: an inexpensive and relatively speedy family restaurant. By the mid-1970's, the chain was the fourth most-franchised restaurant chain in the United States, with more than 1,400 franchises in the United States and 200 more in Canada by 1977. In fact, the success of the chain was such that other restaurant chains, such as McDonald's, Wendy's, Arby's, and Perkins used Sambo's as a model business during the food franchise wars of the 1970's.
Unfortunately, things were about to go downhill for Sambo's.
The Beginning of the End (1978-1982)
In 1978, the chain received multiple lawsuit threats due to its choice of decor. The "Sambo" character, as portrayed in the children's book, had very dark skin and it was perceived that Sambo was a stereotype of people of African descent. The story itself was also described as being racially insensitive, as Sambo makes some questionable choices in the story; this contributed to the perception of Sambo as a racial stereotype.
The chain attempted to rename and redesign itself to avoid lawsuits (names such as Sam's and Special's were tried in the early 1980s), but the second major problem in the Sambo's chain began to rear its head. In order to spur on rapid expansion of the chain, the business structure of Sambo's was organized as a clever Ponzi scheme. The scheme worked like this: in addition to pay, workers at Sambo's were compensated with "Sambo's Shares." These shares, when accumulated, could be used to purchase a new Sambo's franchise at a reduced price. The goal of this scheme was to encourage forward-thinking Sambo's employees to start their own chains, but the actual result was that people were buying Sambo's franchises without the financial means to truly support the restaurant.
The Downhill Slide (1982-1989)
Between 1982 and 1989, the number of Sambo's restaurants in North America went from roughly 1450 restaurants to just one. With franchises going out of business, since they were unable to afford the costs of redesign and restructuring, the franchise fees for the chain stopped coming in. As a result, the chain was unable to promote itself and thus even well-managed individual restaurants went out of business.
Denny's, another restaurant chain with a similar target niche, made a name for itself in 1984, when it purchased roughly 800 of the Sambo's franchises and rechristened them as Denny's.
By 1989, only the original Sambo's (then called Sam's) in Santa Barbara remained.
The Legacy of Sambo's (1990-date)
The Santa Barbara restaurant reverted to the Sambo's name in 1990 (minus the decor) and is still in business today. Chad Stevens, the grandson of Sam Battistone, now owns the restaurant and has flirted with the idea of expanding with new Sambo's restaurants, but for now, there is only one Sambo's.