Leveraging setbacks to reach global goals

Joe Mimran (00:02): Hi, I’m Joe Mimran and welcome back to the Export Impact Podcast. Sheertex is a Canadian company, best known for its Sheertex knit, made from one of the world's strongest polymers resulting in impossibly strong pantyhose. Sheertex officially shipped its first pair of tights to consumers with a 90-day rip resistance guarantee in 2009. Since then, Sheertex has grown to a staff of more than 200 people and $US30 million in annual sales. It's a heck of a success story. So, who's behind it?

Well, she's raised more than $140 million in venture capital and is the author of Funded: An Entrepreneur's Guide to Raising Your First Round. I'm, of course, talking about the incredible Katherine Homuth. As the founding CEO, Katherine invented Sheertex's first patented knit and leads the executive team. She's going to be telling us about how she got her business off the ground, how she overcame the challenges she faced, and how she's aiming to upend her whole industry.

I'd like to begin today's episode by acknowledging that we're recording from my office in Toronto, which is on the traditional unceded territory of many nations, including the Mississaugas of the Credit, the Anishinaabe, the Chippewa, the Haudenosaunee, and the Wendat Peoples, and is now home to many diverse First Nations, Inuit and Metis people. We value taking this moment to deepen the appreciation of our Indigenous communities wherever we are and to remind ourselves of our shared debt to Canada's First Peoples. 

Welcome Katherine, and thanks so much for joining us today. My first question is, where did the idea for Sheertex come from?

Katherine Homuth (01:56): That's a great question because I've got to say that pantyhose is probably the last thing that I ever thought I would be getting into, but I had always been just so passionate about knowledge and building new things. My previous businesses had been actually in smart hardware and e-commerce software and I realized that so many of the products that I was working on, while they would connect this and that to the internet, they often just seemed like technology for technology's sake.

When I was starting this business, I knew I wanted to get into something that wasn't software. I wanted to get into something that you could touch and feel because it was something that I felt like I lacked on a couple of my previous ventures. Pantyhose just got into the mix because of all the problems that I was sort of brainstorming. It seemed almost the silliest. How do we have self-driving cars? How do we have space travel, but we don't have a pair of pantyhose that can just get through a day of wear?

As I started to research more and more, it just became clear that textiles had really been fairly stagnant for a long time. The last real innovation in hosiery was back in the ‘50s with the invention of spandex and I just couldn't help, but think that we could take new technologies and apply it to the apparel category and not just create better consumer experiences, but hopefully, also take something that was such a disposable product and make it more sustainable, as well.

Joe Mimran (03:28): Was there any company you looked at as a model when you started looking at trying to solve this problem?

Katherine Homuth (03:36): I wouldn't say that there was any one company, but I had spent a lot of time in the whole Kickstarter (crowdfunding platform) world in my previous business. I had watched companies, like Pebble, that had launched the first smartwatch and got such fanfare over this new technology that they had brought to market and done in a direct-to-consumer way. One of my first jobs out of school was at ecobee, which was the first smart thermostat—this was before Nest—and was really inspired by what they had done on the sustainability side and was really just watching all of these consumer companies at the time—whether it was Times Warby Parker (eyeglass retailer) and Allbirds (footwear) and that whole group of companies and just loved the brands that they were building on the consumer side. But I felt that there was so much more that we could actually do on the technology side. And that's really where the dream for Sheertex came from; not only how do we do the consumer side, but also really find that magic of a technology that changes the category.

Joe Mimran (04:38): Yes. But you knew nothing about the industry. You knew nothing about textiles.

Katherine Homuth (04:45): Nothing at all and you witnessed that firsthand.

Joe Mimran (04:49): I did because I remember when you showed me your first pair of pantyhose and I thought, my God, what is this? And a whole bunch of questions surface as I think about that moment. But what made you think that you could come up with a solution, first of all, and second, how did you go about finding the solution?

Katherine Homuth (05:11): I guess I'd always been fairly obsessed with entrepreneurial journeys since I was a very young, young kid. I loved reading autobiographies. I loved reading stories of entrepreneurs and I think I had seen, at least by that time, a pattern that so many of the entrepreneurs who I admired. You can look at Sara Blakely from Spanx as an example. You can look at the story of Uber. None of these people had industry experience really when they started and it was more about (a) stubbornness, but (b) being able to look at an industry from a totally different angle, being able to see the problems. Like your ignorance is almost a benefit, right? Because you just know what you want to get at the end and you're not tied down by all of the reasons why this shouldn't be possible. 

If I had known all the things that someone who knew about hosiery knew, they'd probably say, well, there are no fibres that meet that qualification in apparel. They would've said, “All of this is made overseas, you can't actually have that much control over the manufacturing process.” They would've said, “All of the machines are built to do this exact thing. If you want to do what you're trying to do, you're going to have to actually go to the machine level and change it and you don't have enough money to do that.”

Just doing a pair of tights takes 18 months; doing a different pair is going to take five years, 10 years. Do you have that much time? And when it was like in three months, I can do this, totally, it's going to work. Honestly, I'm looking at where we are now and we're five, six years into this process, we're just getting to where I want to be on the tights product. And had I known that, I probably never would've signed myself up for the pain. But I think the ignorance in entrepreneurship can sometimes be a little bit of a superpower.

Joe Mimran (07:05): That’s so true because it allows you to look at things in different ways. I often feel that when you're in the industry, or in any industry, you are jaded by your past experiences, or by the knowledge you have, and you sometimes need to be starry-eyed to pursue a dream, like you had, and you didn't disprove many of the veterans in the business. But I love this idea of that it’s a superpower. But it's a double-edged sword, too, because I see so many young entrepreneurs who are wed to an idea that has no market. In this particular case, there was an actual problem you were solving. Tell us about what you ended up discovering, in terms of the product, how you got the product to the right stage, and then how it was being embraced by the consumer?

Katherine Homuth (07:59): This was really a long road. Those very first prototypes that you saw, they honestly looked more like cheesecloth than pantyhose. They were white, they didn't stretch, they really just got hacked off the machine. We didn't have the technology to assemble them properly. And that was about, I'd say, nine months into my journey.

Three months later from there, we'd been able to solve a few of the problems. We were starting to be able to make it stretch. It was still very uneven, in terms of its colouring. We could only make a couple of them at a time, and they were quite thick. But from there, we were able to, within about a year, get to a point where we'd solved most of those problems. We had a product that looked kind of like tights. It was relatively sheer, but when we shipped it to our first customers, and it was really just a small beta group, probably about 500 customers, we got, what to me was, incredibly disappointing feedback.

First of all, they said that there were almost no comments on the feedback card about, wow, it doesn't break. All the comments were about the waistband. The waistband doesn't quite fit well, it's not quite working for me. How do you hold the first pair of practically unrippable tights and just be like, “Eh, the waistbands a little bit tight?” But I realized in that moment, that it had to be more about a whole product and not just a feature of strong tights if we were going to win this market. And so, we worked on that feature. We ended up shipping a new batch of product to these customers and then, I got the next piece of disappointing feedback. As strong as it was to withstand rips, it was catching on people's fingernails. And that meant that you'd get little runs, not really runs, but just little imperfections on the product.

And we were getting OK feedback, but not incredible feedback. And I knew that the product had to be incredible if we were going to do what we needed to do. I remember going to my husband at that time, and this was more than two years into the journey, saying, “I guess that's it. I guess we put two years into R&D and it's over. Like it's just not good enough at the end of the day.” I remember him saying to me, “You’re just at the beginning of this journey. You shipped basically your first pair of tights, that's where the journey starts. Now, you have to go and you have to improve it.”

I ended up being sad for a few days, but eventually rallying. And we ended up going back to the drawing board, looking at all of the fibres that were in the product and how could we defend against this problem. We ended up talking to a lot of different people in the industry and changing out some of the fibre components and shipped it back out. I'm so grateful to say that that next batch of product, it ended up being the product. It still acts as pretty much the base of what we do today. It wasn’t catching, it was incredibly strong, it had the right waistband and we continue to build on that.

But even in that prototyping phase, there were so many moments of it just not quite working. Then finally, we got that product out there we really wanted, but it was at an incredibly small scale, hundreds a month. Our next challenges were how do we scale up production because we had such a small operation, but then also, how do we scale up demand? We're still really as a business in the part of our lifecycle where we're trying to get as many pairs of these tights out into the world, so that we can drive down our cost to produce.

We really believe that if we can make these tights as accessible on a price point that's on par with other tights, that we can completely replace the market. But getting to that scale is incredibly difficult. At this point, we've shipped millions of pairs of tights, but we estimate it's going to take us getting to having shipped tens of millions of pairs of tights to really get to that parity price. It's still very much a demand-generation phase for the business. How do we teach people about this product? I'm very happy to say that we're already the No. 1 selling style of tights in the U.S. by dollars. But as much as we're the No. 1 in terms of dollars, we're still very, very small in terms of units. So, as those units grow, the price will fall and hopefully, that's where we can make the biggest dent—both on eliminating disposable hosiery, but also really changing this industry.

Joe Mimran (12:32): Some common themes: You got support from your hubby who said don't give up, which is a common theme of so many successful entrepreneurs where they try and try and try and as many times as they fail, they continue onwards. You never know where that support's going to come from. In your case, your hubby was great support and helped you in not giving up. And then there's this whole issue of the production side of things, right? There's a practical side of, “Well OK, now I've come up with a great product, or we think we've got a great product, how do I get it out to the world?” And you had to make some tough decisions on whether or not to make the product yourself because many people will go out and they will third-party the manufacturing side of it. What made you so determined to do your own manufacturing? Again, you knew nothing about manufacturing, let alone yarn development. What made you think you could become your own manufacturer and some of the hurdles that you ran into there?

Katherine Homuth (13:33): On our manufacturing, I was certainly very naive. I assumed this little 2,000-square-foot garage that I had signed up for in the early days was going to be it. I assumed that was going to last us quite some time and I had no concept for scale of manufacturing. I had no concept for just the amount of storage that you need when you're manufacturing, selling, distributing a product. But I was very set on us making our own product, first and foremost, from an IP (intellectual property) perspective. I knew that if this was going to be a valuable business, a valuable technology, we had to control the intellectual property around it. And I knew that if we had someone else manufacturing, particularly, if we went with partners we didn't know well overseas, we would lose control over that IP very quickly. 

The other aspect of that was I was really passionate about the speed of discovery and the speed of improvement and I realized very early on that it was taking two to four weeks for any single change to be made to our product because we would have to make a request to the manufacturer, they would do it on their shop floor, they would send it over to us, we'd give the feedback, they'd do it again. Every iteration was taking a month and I didn't have the three years, five years to work on this product before we had a single usable sample.

But when we were controlling it ourselves, those iterations were an hour, two hours and we could move so much faster. I think people underestimate how important speed is for a startup because there's only so much runway that startups have and you have to maximize every single moment of that. For us, that speed was really, really important. 

The third thing is cost. For us, there was no room. Like at the beginning, we were selling the product for probably less than it cost to make the product. And if we were cutting in other manufacturers or other suppliers into that cost, it would've just been astronomical, and we never would've been able to get this in customers’ hands. By doing it ourselves, we've been able to get the lowest possible cost and pass that on to our customers to be able to grow the market size.

If anyone is out there considering doing it themselves, I think IP is the most important way to think about it. But beyond that, looking at speed is really, really, really important to your product development process. If you have one product and it doesn't change, speed's not that important. If iteration is very, very important, then doing it yourself, or having a way to prototype yourself, could be very important. And then cost. Can you do it a lot cheaper if you do it yourself, or is it just marginal difference between someone else and you doing it? In our case, it's always just been so much more of an advantage to control the process ourselves.

Joe Mimran (16:38): I have a million questions regarding how you got into manufacturing without any engineering knowledge. There are so many issues there, but I want to just pivot for a second because this podcast is all about exporting. If you could just talk a little bit about that part of your journey; how you chose to sell into the U.S. market and abroad, and what some of the challenges were as you tried to do that?

Katherine Homuth (17:08): Of course. I think that for a lot of Canadian founders, you fall into one of two camps:

1. You're either building a product that mirrors something that happened in another country or the Canadian market; or

2. You're building a brand or a product or a technology that’s for the rest of the world.

And I've met lots of founders who have built brilliant businesses on both sides of that. But for me, I knew from Day 1 that we were building a product that we wanted the whole world to have access to. And my experience had really been with platforms, like Kickstarter, with brands that were based out of San Francisco. I don't even think I thought twice about the fact that this was something that was at least going to market in the U.S. to start. I know that there are a lot of brands that actually use Toronto as a test market for things that they're changing for U.S. markets.

The good thing is there are lots of parallels between the Canadian market and the U.S. market, so I didn't feel like an underdog going into the U.S. market. I really felt like I had a decent understanding. It helps that we went through Y Combinator (startup accelerator program) when we were starting this, as well. I was spending a lot of time down in San Francisco. I think for many years, I probably spent a couple of months a year in San Francisco doing meetings, spending time there so, marketing in the U.S. was a very natural first step for us. From Day 1, I would say that about 80% of our sales have been in the U.S., maybe a little bit less than that in the early days, but 80% of our sales in the U.S. Then a couple years in, we started to play with a few other markets.

We started to play with Australia because it’s counter seasonal—somewhere that we can sell tights in our summer months. Then, we started to look into English-speaking European markets and started to build out a customer support team that actually spoke many different languages. We, obviously, ended up moving to Montreal so, France was an easy, natural extension. At this point, the U.S. is still our primary market, but we do have distribution facilities that we work with. We don't own these ones, we partner in Australia, the U.K. and Germany so, that we can expand our distribution. But we’re in the infancy of expanding outside the U.S. I'd say there’s brand awareness and it's funny, you know, there's obviously surveys and things that you can do to find the exact number for brand awareness and we're working on that as a team.

But there’s a feeling that you get when you've hit a level of brand awareness. It's like all of a sudden you go to a trade show, or you go somewhere, and you say, “Sheertex” and you're not explaining it from scratch again. I think that one of the challenges that success in one market causes is that every dollar marketing we have is a little bit more efficient in the U.S. than it is anywhere else right now. There's very little incentive to take those marketing dollars and go into another market, even though it's the right thing long term.

In the short term, it's painful because we're just at the brand awareness phase in those other markets. And that's kind of the tension we have now is it's so much easier to just double-down on the U.S. market than to go and open new markets. I'm sure you've seen this with other companies and other brands, as well. But certainly, going beyond the U.S. market is something we're working on right now, but it's certainly not without its challenges. We've done a popup shop in the U.K., we've done brand marketing events in Berlin, but it's still very much in its infancy.

Joe Mimran (21:05): And as you’ve thought about exporting, how has EDC assisted your company?

Katherine Homuth (21:12): EDC has been there for us in so many different ways. Our first real touchpoint working with EDC was right at the height of COVID-19 and we were going through a time when we just didn't know whether there would be any more demand for hosiery going through the pandemic to the other side. EDC had a program to support businesses, like us, during COVID-19. So much respect for the team there for being willing to get involved with a business, like ours, when we were just living through so many different question marks as to what the future of the business would be. From there, we just sort of kept EDC in the loop on everything that was happening. 

We had been through a lot of growth during COVID-19 despite the market and we were looking at doing another round of financing. EDC reached out just to say,”How can we help? What do you need?” And we're talking a lot about some of the challenges that exist in being a Canadian company at a growth stage, trying to create the structure and EDC ended up really taking a lead role in helping us think about how we could structure it, how we could pull together all of the parties that were interested.

It was really such an incredible process and I move incredibly quickly and if someone is not going to keep up, I'm happy to move on and EDC kept up. For a government agency or a government-affiliated agency to keep up with a startup, I think is just impressive in and of itself. That was really wonderful to see. From there, we've also had the pleasure of working with EDC’s debt arm, which worked with us on a lot of the equipment that we've had to purchase for our new facility, which I can't wait to tell the world more about our new grand opening in Q1. It's this new 300,000-square-foot facility to create kind of a state-of-the-art future for what we want to build for the business, and EDC has been an incredible part of that build-out.

Joe Mimran (23:19): That's a great testimonial to EDC and also to your ability to convince and to sell your dream, which has become a reality from a very, I would say, machine in the garage to a 300,000-square-foot facility is quite a journey and is a lot of capital that's got to be raised. You’ve been incredible in the way that you've been able to explain your vision and then get the support with real dollars and real capital. You've raised quite a bit of money over the period of time. How much money have you raised over the five years now?

Katherine Homuth (24:02): We're probably sitting around $150 million that's gone into the business and that's more on just the equity side. We've, obviously, had other forms of support in different ways. It's been a lot of fundraising, for sure. I think what a lot of people don't realize about Sheertex is that a lot of people know the consumer tights brand, but they don't realize how big an industrial play this is. We’re a massively vertically integrated, effectively chemicals and materials company at this point in time. We produce all of our own raw materials and we do everything all the way to shipping that product to the consumer. That’s a huge lift, huge investment, but it's something that we truly believe gives us a unique, differentiated edge in the apparel industry, but also just in the materials world. 

Few materials companies, and now, you're looking at (chemicals) companies, like DSM, Mitsui, Honeywell, so few of those actually have products that go all the way to the consumer. I think this is a new model and a new way of looking at bringing products to market. Now, we're starting to take that platform and work with other companies. We have our first products launching globally with H&M (fashion retailer) in the next couple of weeks. We're working with brands, like Swedish Stockings. You'll now find us partnering across the entire industry to take this platform to other major brands. I think that's the part of the story that isn’t what we're putting the marketing dollars behind, so no one really sees it. But if anyone is curious about it, our website, www.srtxlabs.com, talks more about the material side of our business and everything that we're doing on the industrial side. 

I think, myself, and probably a lot of other entrepreneurs, sometimes, it feels self-promotional, or it feels almost dirty, to be out there telling your story, getting involved, raising money, but I realized probably a few years ago that that same skill of telling that story of raising money is the exact same skill that's going to help you grow this and put this in a customer's hand; that's going to help you recruit talent to your business; that's going to help you do all of the little sales jobs that you have to do every day. I've started to embrace the idea of being a good fundraiser is actually just being a great evangelist for your company. In order to create a successful company, you need to be evangelizing for that company at all times and it creates a really positive network effect that I think you need beyond fundraising.

Joe Mimran (26:52): I think that's such a great point and what you've done, in terms of this vertical play, is a very, big undertaking, a huge dream because you have to be good then, not just at raising the money, not just at marketing the product, not just at having one good idea, but putting it all together. Then, you get this entourage effect from having all these pieces in play, which makes it so much more powerful a story at the end of the day. I've had the pleasure of seeing how you've moved through the years to get to this point, and it really is quite an achievement, I must say. I would think that you are in the hall of fame of young entrepreneurs in my books. You've been an inspiration to listen to and I'm sure for many Canadian entrepreneurs listening right now, this is something that they can perhaps model themselves against. If you have one piece of advice that they should take away today, what would it be, Katherine?

Katherine Homuth (27:59): To any entrepreneur who's on the other side of this thinking, you want to model yourself against this, I give you a hug and I give you good luck. This is hard and I mean that on a human emotional level. There's probably not a week, sometimes not a day, that goes by where it feels like too much. Every single day has a new challenge and then, you add onto that the operational challenges of running a business and all of the people issues that happen with that, all of the customer issues that happen with that, navigating different legal landscape, learning about patents, learning about every single corner of the business because you're not expert in maybe any of it, but certainly not all of it. It's just so hard. You have to basically realize that your job is solving problems. That if you're lucky enough to build a team, or an organization, that functions reasonably well, all of the hardest things, all of the problems will be what filters up to you every single day.

And you need to get really good at not freaking out every time something gets to you and be more like, “This is just another opportunity. This is what we do. This is what makes us different.” And it's hard because in one second, you'll be convincing yourself that you love this problem-solving, it’s amazing, this is so much fun and the next, you'll be like, “Oh my gosh, like another thing, another day. Oh my God.”

So, surround yourself with other entrepreneurs, surround yourself with people who can help you laugh about it, and find ways to take care of yourself in the process. I hope more people will build big things for Canada and I think it's going to take us all supporting those people and understanding that these things don't happen overnight and they look broken a lot of the time until they don't. And we need to be there to support it.

Joe Mimran (30:04): That's great advice. Very inspirational. Katherine Homuth, the founding CEO of Sheertex. It's been a pleasure to have you on the show today.

Katherine Homuth (30:13): Thanks, Joe, I really appreciate it. Thank you for all of your support over the years. You were one of the few that kind of saw what this could become.

Joe Mimran (30:22): Thanks for joining us today on the Export Impact Podcast. If you enjoyed today's episode, we'd love for you to subscribe, rate, and leave us a review on your favourite streaming platform. See you back here in two weeks.