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?

BY APRIL JOYNER

Inc. Senior Reporter@aprjoy 508 SHARES

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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