How The Vertical Collective is Disrupting Fashion Manufacturing Ep. 39

We just recently became company number 35 on the Inc. 5000. So that was a massive win for us. You know, 2020 was very challenging for a lot of people. It was very challenging for us, but Katherine and I did what we do best and we just kind of

muscled through it.

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Today, I'm talking to two powerhouse women in the fashion manufacturing industry. Katherine Zabloudil and Morgaine McGee are co-founders of the Vertical Collective, a manufacturing firm that specializes in product design and accelerated development with brands and retailers of all kinds. Previously, these co-founders worked for brands such as Guess, Just Fab, Kate Spade, Coach, Chanel, and Givenchy to name a few. Now let's get right into it.

We have both been in major corporate executive roles for almost two decades, which is crazy to believe. And some of it, we were together, some of it, we were apart and I think at the end of the day, you know, we realized, hey, we have this incredible toolkit of this global supply chain access to designers and understanding of how high level luxury brands were all the way down to the super, super big box discounted retailers. And when we finally had that moment of saying, we know how to do this, it was for me juxtaposition with being at, in a corporation that was quite toxic actually.

And I just had a one day of this reality check. I can't do this any longer. I'm kind of done. I earned my stripes. I know Morgaine was going through a similar thing. It's a little bit different times, but more to speak to that. But I think we came together and just said, enough is enough. We know how to do this.

We've been making people billionaires for years. Why don't we take it inwards and create something incredibly special that is relevant and do it our own way without politics and just do the workforce way we've been doing all these years.

Your own politics. So, Morgaine, what is your response to that?

I would say very similar to Katherine.

It was just in a way I sort of felt that I had hit a ceiling with the company I was working for. Again, it was a very male-dominated hierarchy. I had been running a team of 60 people for them in Hong Kong, and it was just time for us to do things better. We knew we could do it better. Also as you know with the big corporation, it takes time, things are slow.

People are slow, decisions are slow. And we just had so many exciting ideas and we were just seeing exactly what was happening in the market. We were working for very large brands that retail was going one direction. And we were so excited about everything that you're seeing at the time with all these direct to consumer barons, digitally native brands, and just thought that's who needs our help.

Those are the people that need the product support. We have that knowledge. We have that experience. We have that supply chain, they have great ideas. They have an amazing vehicle for marketing and data driven services. And it was right for the picking at the time, it was just really all about timing. We felt that it was time to go.

How big of a jump was it to go from corporate to running your own business, becoming CEO leaders of your own company, learning how to run a business from the bottom up. Was there a major challenge for either one of you?

Honestly no. I would say because Katherine and I have done everything you could possibly do in a corporation from making the photocopies, sending the samples during the FedEx, you know, designing the product, running the manufacturing and managing huge teams.

So we did have that core knowledge, but I think the biggest challenge she and I faced was because we both had such a big depth and breadth of the actual industry and what we did that we had to learn to stay in our lane. And we knew we each had core strengths that were a little bit different and we just had to divide those tasks and just

let the other one run with it.

Okay. I love this. And Katherine, I want to talk to you about how you guys defined your core strengths. Did you take a Clifton strengths finder? Did you just know naturally? And then where is that dividing line between the two of your responsibilities?

Yeah. So I think interesting because when we started, you know, we still, even though we knew what we got to accomplish and we knew what we came into, being entrepreneurs with with art, this toolkit, the beginning was we still didn't have the complete picture on, okay, this is exactly who we're going after.

This is how we're going to start. This is how we're going to connect with them. So we did a lot of testing. First, we reached out to our network, our networking with the fashion accessories. Community's quite small, even globally, right. We all worked in travel together and kind throw the same shows and markets.

But we first tried to test the model on startups. So we really started initially early on reaching out to everybody in our network and saying, Hey guys, here's what we're doing. Here's what's happening here is what we'd like to do here. The services were offered almost like consulting. So we started as like a mile consultancy.

When we started, we had a couple of startup plans. Quite soon as the word continue to spread amongst our network of what we were actually out there doing that we'd left for bread and we have all these factories and et cetera. We started getting these calls from people who were like, we. Went to China, ourselves.

It failed. We have spent all these numbers and we were like, why can we cry together on the phone? We spent thousands and thousands of dollars in development, and we don't have any samples. We were supposed to go to market three months ago. We can't get in touch with anybody. And we were like, wait, we can help with that.

And then we'll decided it was like, we have a group on the ground. We have more to in Hong Kong, it just little bits and came together. We're like awake. We can change it and all these birds and bring them to life, get them back on track quickly. And we also even trusted going back to your beach. Like we knew everything we knew from our corporate, from our legacy brands with wholesale retail.

And we, we try to not lean as well for a little bit where we were like, hey, you know, we could be a private labeler. I remember there was this one day I was in a portal for a very good retailer, was on the phone with Morgaine. And I was like in the portal and it said drop down to your vendor and you find your vendor name in the list.

I dropped it on this portal and there were, I think they be 2300 vendors and I was just like, Morgaine, why aren't we doing what I'm doing?

Where are we in this process? And what's our ideas?

And we know how to do that, but everyone is doing that. According to this list I'm looking at.

So are you wearing an artisan necklace?

I am.

I have that same necklace. Are they clients?

They're not, I wish we had reached out to them, but jewelry's a little bit outside of our main sort of main line business, but it is something that we are always looking at constantly coming to us for custom jewelry.

Is there one task or one strength that you guys both share that you kind of fight over? Like I want to do that. No, I wanted to do that. And if so, which is it?,

Nothing comes to top of mind. I think like the main thing it's always product related. Right? We love product, we're product people. We're so hands-on. My background's design.

Katherine's done design. We've both done product development. I love taking something from like literally a bolt of fabric and it becoming a garment outside of that we're not fighting over who gets to, you know, handle logistics or put the finance here.

We've always had an incredibly strong relationship over 15 years. And I think the reason we work so well together is we're very open and honest. There's just completely transparent. Like as if we're a family and we're very open with, you know what, like maybe that delivery wasn't great or Kath really emails with the factor. Like it's not helpful and we finally found like, sort of the separation of church and state.

In terms of okay, this is Morgaine's core strength is in the beginning. We did both try to do everything. We were just a tube as in our kitchens on opposite sides of the planet, trying to do everything. And that's the reason we were able to lift the business so quickly. But we finally had that moment of time where we're like, okay, you know what?

Like we're ready to know. We've identified. Who needs to handle what, in order to be efficient and in order to separate so that we can handle more and take on more clients and find more factories. And when that finally changed, it's organic time. That was really when the business took off.

Morgaine, do you speak Chinese?

No. I'm going to say no. My Chinese is remove that stitching, change this seam, add X centimeters to the gusset. That's it. I don't converse.

Yeah, I understand. So I'd love for you to talk about your Incubator program. What is it and what kind of success have you had with it?

There's a really a big focus of ours this last couple of years has been, we've been a service provider, right? We've been a B2B loyal, trusted resource for so many of our clients. And we love that. And that's how we started our main line business. But we finally came to this position just based on our growth and then the people who are coming to us and all these incredible innovators that are coming into our company. And we're just needing advice that we were like, okay, we are now in a place where we can

take a position on innovation, not just provide a service, but also now be ahead of the services or ahead of the products that are coming down the pipeline based on trend or need. And obviously the pandemic and all the other things that have been, you know, we've all lived through this last 18 months. And so our Incubator ship is, it's so exciting.

We launched it last year and it started with a couple young startups that came on board, but didn't have VC backing and we basically coach them through day one all the way through launch and then beyond. And then they become, essentially they have the option to become a client at that point, or to really just kind of take off and spread their wings.

But really it's about finding these disruptive innovators, not just in consumer goods, but even outside of the space. Right. We're doing a lot in healthcare now and wellness. It's just so exciting because it really has just opened the door to us, seeing all these new brands and all these brilliant credible people in times of pandemic or crisis, or as we've lived through all of these ups and downs in the economy.

So much innovation comes out of that. And we saw that happening lap early last year, put together a program now to take in these brands that are probably not going to be able to lift this year and get them there because it's doable and it's right now, people are going to be craving innovation after this is all over.

Are you doing this on a fee basis, or are you taking some equity, or is it just a nonprofit and hopes that they do become a client?

We actually look at it each group individually, we don't take a fee. We do it as an exchange of time and services. And they get to have time one-on-one with Morgaine. They get to have time one-on-one with me.

They get access to our teams and the exchange of, you know, sometimes it's equity and sometimes it's just a collaboration where we know that we're helping as women and as entrepreneurs because we've been there and we can hopefully alleviate some of the pain, maybe fix some of the issues and drive the brand forward.

I love this. So you guys are a world apart, San Diego, Hong Kong. How do you make day-to-day operations work? Do you actually have a 24 hour company? Like I'm sure there's amazing pros and some cons.

Yeah. I mean, we really truly function as a 24 hour, seven day a week company. I mean, it's constant communication between the two teams, our team in Asia and the team in the US.

It's the US will work all day. And again, they're handling the clients that are the business. So they're getting feedback on samples that we'll send. Possibly meeting with new clients about potential new programs, anything that we need to kind of go through the day, approvals all of that stuff. And then that gets sent off to the team in Asia and we pick it up from there and we go days start early here, you know, working with the west coast, I start early, I'm always touching base with Katherine, or if there calls that we need to be on potentially for a new client that most of that's handled through the US and Katherine does that.

That's something I want you to hear too, I want to get your take on what the production sort of would look like on this. Or if it's something that would be able to do overseas for them and not in China, et cetera. So, yeah, it's pretty seamless. I mean, between technology these days, it works really well. Is it a blessing and a curse? 100%.

Who's the one waking up the latest or getting up the earliest? Both of you.

Yeah, for me, I'm the one that gets up very early.

I'm the one who wakes up in the middle of the night and then when we're in action, there's always something, right. There's.

There's always something. Katherine and I are incredible planners and problem solvers, and there is a backup plan to the backup plan, to the backup plan.

And you think you've literally seen everything that could possibly happen in manufacturing and something comes up and you're just like, how? And you just take a minute and you take a deep breath, but we're just really good at hustling and figuring it out and leaning in and working the problem and always getting some sort of resolution.

How big of a challenge is the supply chain and shipping right now due to COVID for your brands?

This is a massive challenge at the moment. Really. It's truly a perfect storm. It is a combination of bullwhip effect along with peak season heading. Along with port closures due to COVID, which has then created backlog in the US and container ships aren't coming back for us to be able to ship again.

I can see from here, from where I live the backup of like 20 container ships in line to get to the port, both San Francisco and Oakland from where I live. And I think. That's where my iPhone is.

Even just more on a granular level, it goes back to shortages. Shortages of workers reduced capacities of factories because these factories have had 18 months of little to no orders. And all of a sudden they're inundated with having to be able to manage it all. And it's just difficult for them to control.

So, how do you keep your teams connected and motivated?

I'm going to assume that most of you are remote, but do you have offices, physical offices that you're going into as well?

Yes, both of our offices are fully functional.

And when we got into the world of the landscape of PPE manufacturing last year, we feel blessed that we were actually lucky enough to say we are an essential business.

Like we must stay open. We're product company. So for us, that's been a huge challenge during the pandemic of sending samples to clients around the US, they're all spread all over the place. Normally we would meet at least once or twice a week with every single one of our clients in LA in New York, whatever, and go through everything.

Get comments, get feedback quickly. Now it's very disconnected. But our teams are very cautious of it. And we have a rotating schedule for everybody, both in Hong Kong and in LA, but we were together as often as we can with.

Have the two teams come together. And is there a bond there?

Absolutely. I mean, these are people you work with all day every day and they are truly colleagues just on opposite sides of the world.

Great. So when you are trying to look at what you're going to do this year, given this horrific year past, and with all of the challenges that we just talked about, what was the growth strategy that you guys were talking about? Really paying attention to and throwing yourselves into.

So our growth strategy has been truly to go after just constantly generation campaigns. We're constantly prospecting. We have an entire team here in the US that just focuses on sales. We have a team that you've been like sits on Instagram and like just looks at cool brands to see like, okay, this is a company that their main line's business is X, they're not doing any of these ancillary products with let's introduce ourselves.

And we are, again, going back to this innovation that we're doing, we're really trying to take lead on a lot of products that are coming down the pipeline and really own sort of this next generation of what things look like in the next couple of years. So really it's just constant sales, constantly going after new initiative.

But another segment of our businesses on the government contracting side of things. Obviously we have a lot of momentum coming out of the PPE that we manufacture for many states in the US. So we're aggressively going after more on the federal side, federal contracts.

Are you a certified woman owned business?

We are.

So really helps with the government contracts and this reminds me, so my core business is events and entertainment production for large corporations. And I too found myself dealing PPE. Last year, I sold 300,000 nitrile gloves to a client. How on earth? But we do what we need to do to survive. My client asked if we could do that, because one of the things that we provide as a service is branded promo items in high-end gifting.

This corporation saw us in their procurement department as just someone who can source stuff. And so I got to see the underbelly of the black market of the PPE world, and I quickly got out. I'm sure you guys are doing. Other things like creating cloth masks and maybe gowns. What are your PPE products?

So, yeah, cloth masks has been a big one. We've done, I don't know, tens of millions of units of those. In addition to that, we have done traditional PPE from N-95s, three ply masks, isolation, gowns, face shields. What am I forgetting Katherine?

You are sourcing these things that are already created or you design and manufacture them?

It's a combination of both, depending on what the client need is, what the spec is, who it's for. You know, as we mentioned, we've done a lot of state and federal work, but then we've done a lot for the private sector as well. School systems, things along those lines, hospitals, I mean, just yeah.

So I'm asking you about your growth strategy. When you were speaking, I was like, oh, do you have an in house design team?

Are you creating your own lines -

We are and white labeling? Or do you have a brand? Yeah, we white label everything. And we're not like to what we were saying before we stuck out of the private label world, but we are constantly designing products. And our clients they're piggybacking. They want to see what the trends are and they want us to do some, a lot of the heavy lifting on the technical and product side.

So we're happy to do it. It's fun. Right? You go from just manufacturing to then being like, we're actually a very creative bunch of people. It's fun to bring an artistic and have fun with product. Uh, this is what we're doing, right.

Go ahead, Morgaine.

Well, I was just going to say that we also have such a large network of designers that we work with, that we've worked with over the years.

One designer is not making a garment is also making a shoe is also not making the handbags. So that's part of how Katherine and I have really sort of streamlined the business and worked people's core strengths, and also keep the company lean and very focused and strategically hire that way.

Okay. So I wasn't planning on asking you this, but I'm going to, so let me give you an example and you let me know what you would do in this situation.

My daughter is a designer. Let's say she has a top, a bottom, a couple of pieces, and it's selling through and she's trendy and she could come to you or you could find her and you could say, you know what? I think a bag line might really help plump up your business or margins other things, is that what you're doing with some of your Incubators?

You've got a great start. Here are some verticals and other things you can diversify.

Yes, exactly. So Incubator kind of two part series. So first it'll be a client that's basically doing something completely innovative launching on Instagram. There are a couple of key trends that came out of the pandemic that they, you know, sees, but they were manufactured.

At their homes or locally, this group happened to be in New York. So they were working with a small sower sowing group in New York, sourcing the materials, paying a lot for all of it. Right? So the panel-

Not very efficient.

Not very efficient, but we always tell people to start that way, learn as much as you can. Come to us when you are absolutely at your breaking point, you're ready to start making some money.

You want margin. Now you kind of reset. You're tired of just spending so much money figuring it out, which, but again, we always, people come to us and like, I have an idea. We also just try it, test the waters and learn to understand and come back to us when you know the terminology, because this is what we see so often are plans that have gone straight to a factory.

And they're like, I went into the factory and I told them, I didn't know what I was doing. Now we know why you're in this position. Your daughter with the design, with the concept. First move, trying to understand where are the price points that she needs to be at with her current line? Can we help make that process more efficient, sampling side? Is she ready for a little bit bigger production runs, which is where we can go run.

I love this because in part of my life, I teach entrepreneurs to scale and grow their businesses. And I know that everyone's looking for a hack and a shortcut and you know what I'm telling people now? I'm going to tell you what the hack on the shortcut is.

It is, find an incredible advisor or consultant. Take the classes read the blogs. Don't try to do it completely on your own. And I did that for 15 years and I had some success, but as soon as I started engaging with professionals that have been there and done that, it just wiped the cobwebs clear. So I see you guys as a catalyst for designers and brands to cut through all the red tape.

I have a friend Daniel Shantelle that just created a shoe called Snibbs, and I think what he did, was he went straight to the manufacturer, made a ton of mistakes and that was in a really good place. And I think he had some procurement assistance. Wasn't you guys?

It was not us.

Natasha

24:08 Okay. So the last question I have for you is.

We've been talking about success and we've been talking about all of the positive things with the couple of little pandemic moments, but what is the challenge that you guys are really facing right now that you're just really trying to fix, alleviate to move forward.

I think a couple challenges. One is to what we discussed earlier, Morgaine and I haven't been together now for two years.

It's brutal. Right? We do everything together and not to be together is incredibly difficult. Like not seeing family, but also we have to be highly functional during all the, and then that's a product driven company, not being able to sit with our clients on a regular basis, extremely challenging

As much as you create work arounds and instead of having one set of samples sent to a meeting with everybody sitting in the same room, now you're sending multiple sets of samples to people that are scattered all over the place, but it's still very difficult. Product is very emotional. They feed off of each other like, oh, I like the way that feels, or like the way that looks.

And you kind of come to a decision at the end when you're sort of doing it through zoom it's this is not really the same experience

I can imagine that everyone's getting their samples at the same time where you thought you could. Cause there's always a delay.

Yeah. Not being able to get into the factories is also just as challenging for us. We've worked with these people. I've worked with these factories for 20 years. And aside from the fact that they're great partners and we work with them all the time, you know, there's a personal connection to, you are worried about their safety and their families and how they're doing. We have a team in China, we have a QC team that's going into the factories and looking at the product and doing all the inspections.

It's not the same as me showing up face-to-face and really sort of working a problem or figuring out a solution to something that's just not quite functioning correctly, where I really need to be in that sample room or the team needs to be in that sample room and kind of just work through those challenges.

At this point, you just have to find other solutions for we're producing offshore. It's not the Vertical Collective QC team that's able to go into Cambodia and Vietnam at the moment, but we have to utilize things like third-party inspection companies to be able to keep our process going and to keep following that same streamline efficiency.

I think sort of just the big, unfortunate part of COVID and this pandemic has been incredibly traumatizing for so many people globally, but really the fact that we are always talking about here internally, but the continuing shutdowns at the ports at the factories, different countries here in the US, all of that is still compounding unfortunately.

It's driving up the prices for everything. Now, coupled obviously with inflation, I know everybody, this is the challenge for I'm sure. Any company...

Lumber is really, really tough right now. Lumber is just ridiculous.

Crazy. And I think that our biggest challenge now is how do we stay on course, stay calm, continue to navigate like we've been doing, we've got that under control. Also just, you know, from emotional level with our clients, like, you know, still finding that place, you can trust us, we're doing everything efficiently. However, everything now is the costs have been, they're insane. They're crazy. And we're going to work through this together as a partner.

However, we do need to work on this together. And I think that's been a challenge, it's hard. And so many of our customers have been selling product at the same price point and they just keep driving cost down, cost down, cost down, and now the opposite has happened. It's a huge challenge and it's something that we have to figure out and navigate for a very long time here, down in the next couple of years, you know?

Yeah. I was talking to someone in the restaurant industry and this really brought to light. There's such a low profit margin on restaurants. And now with people like risking their lives to cook our food and to serve us, should we be paying more or shouldn't we be paying more in the first place? And with products and consumer goods, if I go to buy something now and I see that it's more expensive, I'm going to probably understand why, but not everyone will. And I wonder what kind of education we have to maybe start now by doing so that we can pay the right amount for something. So the person making it actually has a margin. They're not a charity.

That's it for me you guys, thank you so much. Is there anything you wanted to say that you didn't get a chance to say.

Well, I think something we haven't really shared that we're really excited about is that we just recently became company number 35 on the Inc. 5000. So that was a massive win for us. You know, 2020 was very challenging for a lot of people. It was very challenging for us, but Katherine and I did what we do best and we just kind of-

muscled through it.

Very, very big number for growth for you to be at that position? Had you been on it previous years?

No. No.

God, you guys that's massive growth. I've been on the list three years in a row, and I know the first 50 people on that list every year. They hustled because you have to have, I dunno, 20000% growth to be in like the top 10.

Our growth across three years, it was 8,900.

Amazing. And somebody needs a vacation.

Yeah.

I don't know. That is amazing. That is amazing. And this year you won't be able to go to the Inc. 5000 conference, which is so much fun and the gala afterwards. So you will be on the list next year and we will all be there together. Hopefully. But that's amazing. That is very incredible, especially, I mean, not that we're lesser than, but as the number is 2% of women owned businesses, don't do a million dollars or more in business. And that's it. Truly a testament to our teams around the world and our incredible clients that have been so trusting of us all these years. And it takes a village as you know, so we're really grateful.

We got to hear about the exciting and nailbiting world of overseas manufacturing, the Vertical Collective's Incubator, and how these two women made it to number 35 on the Inc. 5000 list of fastest growing companies in America with over eight thousand percent growth over three years. Brava.

For more information about me, go to my website, natashamiller.co. Thank you so much for listening. I hope you loved the show. If you did, please subscribe. Also, if you haven't done so yet, please leave a review where you're listening to this podcast now. I'm Natasha Miller and you've been listening to FASCINATING ENTREPRENEURS.