Rainco’s Sunny Transition

Careful succession planning and awareness of consumer trends have transformed umbrella manufacturer Rainco into a provider of merchandise that not only protects from the weather, but also helps consumers enjoy it.

Only one out of three family businesses survive the second generation. They most often fail due to a lack of succession planning. Family businesses frequently have the same leaders for decades, which can translate into an inability to move with the times, especially in terms of changing technology and consumer behaviour. A lack of change at the top also concentrates decision-making on one or a few individuals, leading to decision-making inexperience among potential successors, which can create an eventual leadership vacuum. Leadership concentration also leads to a wastage of resources that could potentially contribute or even lead the business. Family businesses also suffer when untrained and inexperienced members of the second generation take on management positions. Other times, these businesses don’t grow enough to support the entry of all family members of the succeeding generations. Today, family businesses are also threatened by globalization.

Rainco, founded by S L M Fausz, has avoided all these common pitfalls of succession, transforming from a simple umbrella manufacturer run by the father into a diversified business run by the three sons. Rainco’s story along the way is a model for how to successfully transition a family business between generations.

This transition started with a simple question. Fausz Sr. had been manufacturing umbrellas for almost two decades when he was invited in the late 1990’s to deliver a lecture on entrepreneurship at the Postgraduate Institute of Management. At the end of the lecture, an audience member asked him, “If you die tomorrow, will your business survive? When they dig a hole for your body, will they have to dig a hole for your company too?” It was a turning point. Fausz began to think of what might happen to his 1,000 employees if he passed away. “Until then, I had a one-man show,” he says. “I didn’t use other people’s brains. Everyone did what I decided.” Over the next few years, he began to slowly transfer the management of the company, first to an externally hired Chief Executive to get the company on more professional standards and eventually to his eldest son, Fazal.

When Fazal joined the company in 1998, it was a simple umbrella manufacturer called Sri Lanka Umbrella Industries, which sold its products under a largely unknown brand name, Globe. The company would assemble its umbrellas at a factory in Kadugannawa and then deliver most of these to a Pettah wholesale shop (the rest were sold at a company outlet). This was the limit to the company’s engagement with the product. Distributors who wanted to sell umbrellas would collect what they wanted, but the umbrella company never pushed the product to them or to consumers. There was no branding and no marketing. It was a passive business model.

Fazal first interned in the factory and then at the outlet for one year each, learning the back-end of the business. But he had big ideas in his head. With an educational background in marketing, he knew that no product could survive the rapid development of Sri Lanka’s market or globalization without marketing and branding. Meanwhile, Fausz Sr. had noticed how things were gradually changing in the Pettah set-up, with fewer and fewer distributors visiting the warehouses for wholesale products. In 2000, the company hired an external Chief Executive with industry experience, Hilmi Sulaiman. He and the father and son began to brain storm on how to start branding and marketing. They came up with a new name and a new colour, changing it from green to red. They renamed the company as Rainco Pvt. Ltd.

“I had a dream to sell as a brand, with people coming to stores and asking for our brand,” says Fazal, who is today the Managing Director. “By that time, our competitor Kandurata had established its name. So it was very vital for us to establish a brand. We started packing in a certain way, did little improvements to the product, and gradually distributors started asking for our product.” In these two years, the company began to slowly shrink the Globe name on the products and expand the Rainco name. By 2002, its products carried only the new name.

Simultaneously, the company changed its business model. It realized that its previous passive business model would not work in the new business environment. Instead of waiting for distributors to collect Rainco products from Pettah, it gradually built up a fleet of trucks that distributed the umbrellas to the outlets. With this, the young company began to purposefully target the umbrella growth market and challenge Kandurata’s number 1 market share.

Rainco actually has a very personal connection to its rival Kandurata. Fausz Sr. had been one of Kandurata’s founding partners in the late 1970’s after he obtained an umbrella manufacturing permit issued by the 1977 government as part of a large industry permit issuance to create jobs in the newly opened economy. Kandurata was launched with five employees in a factory set up in a room of Fausz’s rented home in Kadugannawa. The start was a comedy of errors. With no prior experience in the manufacture of umbrellas, Fausz started spending his days outside an umbrella manufacturing facility in Colombo, asking the employees about the process until one took pity on him and took apart an umbrella and put it back together for Fausz’s benefit. When he realized that he would have to import the raw material from Singapore, he traveled there only to be taken to a five-star hotel by the cabbie, the expense of which he realized only when he saw his bill the next morning. But he eventually found his way around the city-state and returned to Sri Lanka with the necessary contracts.

Over twenty other entities also obtained umbrella manufacturing permits at the same time as Fausz did, but in the ensuing competition, most shut down within a few years. When Fausz’s partner passed away, Fausz brought his partner’s wife into the company, and it eventually established a factory outside of Fausz’s home.

“My system is old fashioned. It doesn’t fit in with the ideas of the new generation. I adapted and let them move with the time. A lot of old businesses fail when they change generational hands because they don’t adapt.”
S L M Fausz

By 1990, the company had become Sri Lanka’s leading umbrella manufacturer, he says. At this point, the two partners decided to go their own way, and the division of the company was put in the hands of community arbitrators. They told Fausz that, as the more experienced partner in the company, he should allow the partner to leave with the factory and the brand. He received only the outlet, while the factory employees were divided between the two. “They didn’t divide it 50:50,” Fausz says. “They divided it to ensure that both entities survived and thrived. They believed my partner was the weak party because they were the newer partner, so I started again from scratch.”

The main asset that Fausz took away from the venture was the employees who decided to come with him. With their help, he set up Sri Lanka Umbrella Industries and started manufacturing umbrellas in his home again, selling them wholesale in Pettah under the Globe brand.

After Rainco changed its business model at the turn of the century to reach out to distributors, it also began to target individual consumers. In 2002, the company began to advertise the Rainco brand, with a comprehensive television campaign. It partnered with Triad, which was also small at the time and, with a tiny budget, it concentrated on putting together unique ads that would leave an impression. Rainco’s ads targeted holidays like Independence Day and Vesak. The company also marketed at festivals in places like Anuradhapura and Kataragama, actively engaging with people. Since the company knew that up to 80% of its clients were female, it made the brand female-centric and youthful. “We were Pepsi while our competitor was the old grandfather umbrella,” says Fazal. “In this way, we were able to carve out a niche.”

The company hired the external Chief Executive to facilitate its move into a more professional and proactive business model, but once this was in place, Fazal took over the leadership and Fausz Sr. retired. Fazal’s takeover was gradual, with him working closely with both his father and the Chief Executive in the first years, initially only making calls on the marketing and branding side, but gradually taking on more of the decision-making and leadership. “In the first days, I drove the car and told him to watch from the passenger seat,” Fausz Sr. explains in metaphor. “After he got experience, I told him to drive while I sat next to him and watched. When I felt confident that he knew the road and how to drive, I went to the back seat and relaxed. After that, I stayed at home.”

In 2005, under Fazal’s leadership, Rainco conducted market research to learn about the psychology of buying umbrellas. The company learned that an umbrella is an impulsive buy. It realized the need to bring the umbrella to an impulse buying point and place it somewhere the consumer would see it. So Rainco conceptualized and distributed umbrella display stands and convinced outlets to place these in prominent places. Rainco sales immediately shot up.

“We grew by penetrating the outlets,” says Fazal. “With the display rack, we were able to convince people and immediately sell the product. Over a period of three to four years, we became very visible and, since it’s an impulse buying product, the decision was made at the shop. People started seeing the brand and buying it. By 2007, we saw significant growth.” He adds that, around this time, his company was able to overtake Kandurata as the number 1 in umbrella sales.

Rainco knew that the umbrella market was growing at about 5% to 10% and targeted this growth market. “Our competitor was very large; it dominated the market,” he says. “But it was more or less stagnant. We were small and unknown, so we did a very penetrative strategy to enter the market without too much hype.”

By 2011, Rainco’s share in the umbrella market had grown to 55%.

The hallmarks of Rainco’s success have been its innovation and its response to consumer needs. It looks at how it can solve consumers’ needs using its expertise. When Rainco learned that consumers were using umbrellas to shield sleeping babies, the company realized that it could use umbrella parts to develop a mosquito net that could be placed above a sleeping baby such that it covered him completely. So the company conceptualized and developed this new kind of mosquito net. While engaged in this process, it realized the country’s lack of a regulated mosquito net industry, in spite of the vast demand for the product. This need was being supplied entirely by cottage industries. “No one knew which size would work on which bed or which netting had quality,” says Fazal. The company conducted research into the bed sizes used in the country and began manufacturing nets suitable for these sizes. It also introduced less cumbersome packaging for easier transport and utility. “We drove the company on innovation,” says Fazal. “It was always about producing something new that was beneficial to the consumer. To do that, we study the consumer and the product. When you do that, you realize you have enough knowledge to understand. The approach is really about going deep and being innovative.”

In the mid-noughties, the company decided to diversify to follow consumer trends. It conceptualized itself in the protection industry, aiming to cover the entire space. It first diversified its model into large umbrellas such as garden, beach and poolside umbrellas, but with this, it realized it could also capture the market for products targeting the outdoor lifestyle. This was the start of its subsidiary World of Outdoors, an indoor and outdoor furniture manufacturer that produces everything from sun beds and patio tables to beanbags specifically designed for the outdoors.

“We’re a country with 365 days of sun,” says Fazal. “Tourists come here mainly for our sunshine. But we Sri Lankans hardly enjoy it, partly because we haven’t had the accessories to do so. We wanted to create glamour around that lifestyle at a time when nobody was pushing outdoor furniture, but consumers were starting to ask for it.” This business eventually expanded to manufacturing outdoor shades and awnings, such as retractable roofs, sail shades and car park shades. From there, it was a natural progression to outdoor blinds and then indoor blinds, which saw the launch of Light & Shade, which also markets wallpaper.

For the past decade, these various entities operated as separate companies, but the group recently registered a holding company called “Aavarana”, which will be launched soon. Today, the group is involved in not just umbrellas, outdoor furniture and blinds, but also paints, decking and flooring, reclaimed furniture, cleaning solutions, fashion watches and brand licensing.

Rainco products have been established in South India through Rainco India, and the company also partners with some Indian companies to share the expertise it has gained in umbrella manufacturing. Fazal points out that there’s no popular umbrella brand in South Asia, a vacuum Rainco aims to fill. “We want to take our products further in this region,” he says. The company is also present in Seychelles and the Maldives, and is starting to push the brand in Dubai.

Though Fazal still leads the business as its Managing Director, today he allows his younger brothers to spearhead and drive the business. “I’m taking a back seat while they’re running the front end,” he says. “They’re deciding where the business is headed.”

The three brothers have vastly different backgrounds and interests, and take care of different sides of the business. “We’re brothers so we work well together,” says youngest brother, Faris. “But we’re very different from each other, so we bring different points of view, which really helps. We complement each other.”

The middle brother, Faizal, is Director – Operations at the company. After completing his studies, he was working in the tea industry when a need occurred in the operations side of the family business. The company was looking at a complete revamp of its factories and, seeing the value he could add there with his educational background in engineering, Faizal joined in 2007 and started to take on gradually more operations work. Today he overlooks the entire manufacturing cluster, as well as all of the sourcing.

Faris joined the company two years later. With degrees in business and accounting, he is now Director – Business Development and concentrates on incubating new businesses. New business ideas are supported and nurtured at the company’s headquarters in Mt. Lavinia until they’re ready to stand on their own feet. Two recently incubated businesses are Blink International, a distributor of fashion watches in Sri Lanka and the Maldives, and Homelux, a distributor of home utility products. “It’s about identifying need,” says Faris about how they choose what kind of business to incubate. “Once we relate to the consumer, we can solve his problems. Every area we have gone in, we identified opportunity. We really enjoyed that space and became experts.”

Fausz Sr. listens to Faris speak of the incubation process and nods. “This is the new way,” he says. “My system is old fashioned. It doesn’t fit in with the ideas of the new generation. I adapted and let them move with the time. A lot of old businesses fail when they change generational hands because they don’t adapt.”