Brothers who took a punt on a new market

Annabel Denham
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Annabel Palmer talks tobacco with Taz and Umer Sheikh: salesmen, business partners, and self-professed pioneers of the growing electronic cigarette industry

SIX years ago, the smoking ban came into force in England, making it illegal to smoke in enclosed workplaces. So when I meet Umer Sheikh – the younger of the two Sheikh brothers behind electronic cigarette company Gamucci – and he is puffing away, I feel complicit in a breach of labour laws. But the smoke is only vapour, the “cigarette” is tar free, and Umer gave up that 20-a-day habit five years ago.

The e-cigarette, initially dismissed a gimmick, is now a rapidly expanding market. It is overtaking sales of traditional nicotine replacement therapy products (gums, patches), doubling in value in the past two years to $300m in 2012. They work by vaporising nicotine-laced liquid that can be inhaled, giving smokers the closest thing to tobacco, but without the tar-related side effects.

Taz and Umer are second-generation British Asians. Their parents founded a retail clothing business when they were children, meaning the family didn’t take holidays, and weekends were spent in their Volvo estate, carting stock from wholesale markets. They describe it as an “unconventional” upbringing, but it was one that instilled in them from an early age “the motivation to create our own companies”. Both went into IT recruitment after graduating. They soon realised, however, that “rather than working for someone else and making them lots of money, we would do it for ourselves,” says Umer. They founded IT recruitment company Revolution in 1999, working specifically with web developers and designers.

They soon expanded the company’s reach into IT consultancy, and built a new software company – RT Solutions. That business is headquartered in Bangalore, the “IT hub of the Indian sub-continent,” and they inform me it is still doing well. But in 2006, government plans for a smoking ban were announced. Umer was determined to quit smoking, and e-cigarette technology was starting to be developed by other companies. Despite worrying that e-cigarettes could be a short-lived fad, and knowing nothing about the industry, they decided to “take a punt”. They travelled to China and worked with an engineering team to design, develop, and patent their own prototype. Their product was launched in the UK in early-2008.

There are two reasons why the Sheikhs never sought investment for Gamucci. The success of their earlier businesses gave them the capital and resources to grow it organically. But also, in 2006, many investors deemed e-cigarettes a “novelty product,” making fundraising a hard-sell for even the most persuasive salesman. So they rented office space from their other company, and used its tele-sales team to help launch and market the product. And they invested their own money in building the prototype. Fortunately, an international deal – in the Middle East and worth £250,000 – gave them an early injection of capital.

I ask how the experience has differed from previous ventures. The most notable difference, they say, is that this time they are a new face in a new sector. “We are pioneers who have helped spawn a new industry,” claims Taz. And the market is certainly growing. Some industry analysts are claiming up to 40 per cent of smokers could switch to non-combustible products over the next decade. At present, the size of the UK e-cigarette market is £50m, accounting for just 1 per cent of the traditional tobacco market. The Sheikh brothers are determined to be market leaders.

Their product is available at 8,000 stores across the country, from high-end retailers like Waitrose to small, independent newsagents. Each sale has originated from their telesales team in Bangalore, with the Sheikhs then holding face-to-face meetings to “close the deal”. The brothers are optimistic, projecting sales this year will double to £10m. But the task in hand is no mean feat. Philip Morris International and British American Tobacco, among others, are positioning themselves for a world where non-combustible substitutes form a significant portion of the market.

So they are now seeking £20m investment to triple their manufacturing capabilities, develop new technology, and grow their marketing team. They have recently hired a new strategy team, led by an ex-Rothman’s managing director.

At the same time, however, concerns are being raised by governments and health experts over how safe these battery-powered devices really are. The French government is set to ban e-cigarettes from all public places, and the British Medical Association has voiced concerns that a lack of rigorous research means we can’t be sure they are a safe alternative.

But the Sheikh brothers are not claiming theirs is a health product; they are trying to provide smokers wanting to quit with a nicotine replacement therapy that is tar-free, and that contains only four ingredients, as opposed to the “thousands of chemicals in real cigarettes”. And they aren’t worried about e-cigarettes being subject to the same tight rules as tobacco products, because the audience they’re targeting won’t mind standing outside their pubs and offices to “vapour,” just as they wouldn’t to smoke.

Although Taz and Umer are experienced entrepreneurs, Gamucci encountered the same teething problems as any startup. Many of the distributers they used at the beginning turned their backs to create rival brands. So they invested in their own trademarks and intellectual property. They grew frustrated with problems of confidentialty and inconsistency that arose from employing contract manufacturers. So they invested in their own manufacturing plant, which now has 200 employees making exclusively Gamucci products.

They are confident that working with family has been a help, not a hindrance. The brothers say they have complementary skills, with Umer focusing on technology and manufacturing – spending every other month at their plant in Shenzhen, China – and Taz working on strategy and operations. “Coming from an Asian background, where going into business with family members is quite common, we don’t find working with one another difficult,” Umer says. Perhaps it helps, quips Taz, that Umer visits China every other month, and he spends much of his time in Bangalore.

CV TAZ SHEIKH

Company Name: Gamucci

Founded: 2007

Job Title: Co-founder and chief operating officer

Age: 43

Lives: Weybridge, Surrey

Studied: Information systems and business management, including economics, University of Essex

Drinking: Red Bull

Eating: Crispy duck

Reading: Think Big and Kick Ass, by Donald Trump

Talents: Public speaking

Favourite business book: Think and Grow Rich, by Napoleon Hill

Motto: “Thoughts become things”

First ambition: To set up my own business

Heroes: Muhammed Ali

CV UMER SHEIKH

Number of staff: 225 worldwide

Turnover: £5m

Job Title: Co-founder and chief technology officer

Age: 37

Lives: London

Studied: Maths and economics, University of Sussex

Drinking: Coconut Water

Eating: Seafood

Reading: The Monk who sold his Ferrari, by Robin Sharma

Favourite business book: The Richest Man in Babylon, by George Samuel

Motto: “If you don’t ask, you don’t get!”

Heroes: Steve Jobs

Talents: I think I make the best Thai Green Curry you have ever tasted!