Subscribe to Inc. magazine
STARTUP

Case Study: Tea of a Kind

After spending three years and $10 million, Don Park didn't like where his business was headed. Was it too late to shift gears?

The Backstory

Am I crazy? That's what Don Park kept asking himself during his flight back to Los Angeles from Germany. He had just turned down a multimillion-dollar deal to license his product to one of the largest beverage makers in the world. The deal promised to be his big break into the industry. But Park was beginning to think his venture would fare better by developing its own line of beverages--even though doing so would take months and require a complete overhaul of the business plan.

Park's product was a bottle cap equipped with a nitrogen-pressurized chamber, able to store fresh ingredients and instantly mix them into the bottle once the cap is turned; he had discovered it while scouting business opportunities. Park envisioned the cap being used to make shelf-stable versions of cocktails and other drinks that would normally have to be freshly mixed. Plus, the cap's function produced a striking visual effect that he felt would attract customers. A robust business could be built, Park believed, by licensing the technology to beverage companies.

For the next three years, Park worked on securing the global patents for the cap's technology and further developing the product, which he called the Gizmo. By 2010, he had secured the patents, found a manufacturer in Germany, and begun attracting interest from beverage companies. Park assembled a group of advisers from the food and beverage industries. He also brought on three consultants to head business development and finance; they agreed to work for free in exchange for the opportunity to earn equity.

The Problem

Several of Park's advisers questioned the licensing strategy. Licensing the Gizmo, argued Michael Lemkin, an executive director at the investment firm Oppenheimer, would mean losing control over how the product was used and marketed. "It destroys the value of the brand," he said.

But Park had invested $10 million in the Gizmo and, like his consultants, was not taking a salary. He had several prospects lined up and was confident he could secure a licensing deal before the end of the year. In October 2010, he and two colleagues flew to London to meet with a large beverage company that wanted to license the technology. From there, they planned to travel to Bremen, Germany, to touch base with the Gizmo's manufacturer.

It turned out that the London company wanted to use the Gizmo for a new beverage that would dispense an energy shot akin to Red Bull into a soda. And that bothered Park. A year earlier, he had been found to have a chronic illness. In response, he had improved his diet--and was uncomfortable licensing the Gizmo for such an unhealthful beverage. Park turned down the deal immediately.

Once the group got to Germany, Park proposed changing gears and developing a new brand of beverages. But his colleagues disagreed. They understood Park's passion for health but remained hopeful that they could find a suitable licensing partner. Not only would developing a brand take years, they argued, it was also far riskier. Park ended up leaving Germany alone. He returned to Los Angeles despondent and unsure about his next move. "They believed it would be too expensive to create a brand," he says. "I believed it would be even more expensive to license without a brand around it."

The Decision

Back in Los Angeles, Park consulted his other advisers. Most agreed that in the long term, a successful beverage brand could be more lucrative than licensing the Gizmo. But not everyone thought he should abandon licensing. "More than one strategy can be pursued in good faith," says Greg Cumberford, president of the Asheville, North Carolina-based incubator Bent Creek Institute and one of Park's advisers.

Park considered partnering with a company whose health objectives aligned with his to develop beverages. But because the Gizmo was not yet on the market, he had little leverage in negotiations. He also fielded offers from companies interested in obtaining the patents to the Gizmo outright.

Finally, Park made up his mind: First, the team would develop a line of beverages using the Gizmo. Once the brand had proved itself in the marketplace, he would pursue licensing for the cap technology. He and his team worked to hammer out a new business plan, but the relationship quickly grew frayed. His finance head reluctantly agreed to stay on, but the two business development executives decided they didn't want to wait and left the project. "It was clear we were not aligned," Park says. "It was only a matter of time before they would lose interest." (Both signed nondisclosure agreements with Park and declined to be interviewed for this article.)

The Aftermath

Park knew he needed a partner with industry expertise. In December 2010, a neighbor introduced him to Walter Apodaca, a former executive at Coca-Cola and MillerCoors. A month later, Park and Apodaca launched Gizmo Beverages. They invested $2 million and raised $5 million more from friends and family.

Over the next year and a half, the duo worked to develop a line of teas. Tea of a Kind debuted in August 2012 in 10 stores in Los Angeles. The first shipment sold out in just one day. In October, Tea of a Kind was named the best ready-to-drink tea or coffee at InterBev, a trade show sponsored by the American Beverage Association. Also that month, the company finalized two licensing deals, one in Austria and another in Japan.

The company's change of direction hasn't come without some bumps. In March 2012, Gizmo's head of finance, unsatisfied with the company's progress, quit. But the company has since hired more employees; it now has a staff of 20. Gizmo's results seem to have validated the company's decision to shift gears. "Although it's a slower dollar, I think Don's decision is working out for us," says Apodaca.

***

The Experts Say...

Keeping Faith Is Key

I'm a big believer that business owners need to feel good about the concept they are leading. My business partner and I have tried to do that in our transition from traditional music retail to online reselling. Park seemed to do this by not taking the easier money but instead protecting his vision for the Gizmo by developing a beverage for it that met his philosophical standards. Not every employee will feel the same way about the direction the owner takes the company, but the ones who share the philosophy will be behind it, and they are the ones who are crucial in making it work.

--Kent Wagner
Co-founder, abundatrade.com

I'm Not Convinced

Few beverage companies can afford to pay lucrative licensing fees for these caps, and the terms Park can get may not be to his liking. Simply having a new technology doesn't necessarily mean that this company will have any advantage in creating a successful brand. As a brand, Gizmo Beverages seems generic to me. I'm not convinced that either path the company has taken will lead to success. They need to commit to one approach.

--John Craven
Founder and CEO, bevnet.com

Get All Stakeholders Involved

When a company makes a fundamental change, it is inevitable that some people will leave. Two people at my company left after we made some major changes. It helps if employees at least feel like you're including them in the decision-making process. It seems like Park came up with a new solution for the company on his own and then told everyone else. It's hard to get people to come on board that way. The best way to minimize disagreement is to make sure that all the stakeholders are in the room.

--Cheryl Yeoh
Co-founder and CEO, reclip.it

 

 

 

More:



Register on Inc.com today to get full access to:
All articles  |  Magazine archives | Livestream events | Comments
EMAIL
PASSWORD
EMAIL
FIRST NAME
LAST NAME
EMAIL
PASSWORD

Or sign up using: