Resources

• McKinsey’s 2020 Fashion on Climate report documents the fashion industry’s carbon impacts and describes strategies major brands can take reduce them, including changing their own operating practices, collaborating to reduce suppliers’ emissions, and encouraging customers to adopt sustainable consumption habits.
• In 2020 Vogue covered the climate impact of plant-based alternatives to leather
• The Material Innovation Initiative partners with brands to accelerate development of sustainable, animal-free materials for the fashion and other industries.
• Learn more about MycoWorks and its Series B funding.

Guests

Host: Rebekah Emanuel, Head of Social Entrepreneurship, Harvard Innovation Labs

Guest: Matt Scullin, CEO Mycoworks

Transcript

Matthew Scullin:
Reishi is literally made of carbon that's been pulled out of the atmosphere, and so the reishi production process itself is carbon negative. It then of course ends up moving around the world, it ends up being tanned, albeit with a very green chemistry compared to what's used for traditional animal leather tanning, but the overall carbon footprint ends up far, far lower than that of animal hides and that of polyurethane or PVC letters.

Rebekah Emanuel:
I'm Rebekah Emanuel. And this is Climate Rising, a podcast from Harvard Business School. We explore the business implications and opportunities of climate change. In this season of Climate Rising, we focus on entrepreneurship tackling climate change. I'm the director of social entrepreneurship at Harvard Innovation Labs. I work with current and future entrepreneurs every day.

Today we'll be talking about fashion, but probably not the kind you might be thinking of. The apparel industry is facing growing pressure about the environmental impacts of clothing. This is all the way from the chemical and water that goes into cotton, all the way to the waste associated with fast fashion, where you wear something a few times and then you throw it away. According to an interesting report by McKinsey in 2020, the fashion industry emits as much greenhouse gas as France, Germany, and the UK combined.

Our guest, Matthew Scullin is seeking to address this. He's the CEO of MycoWorks, which is attempting to reduce the carbon impact of fashion. They offer an alternative to leather that's usually made from cow hides or plastic. That alternative is made from mushrooms. His product is called reishi. As opposed to cows or plastic that produce vast amounts of greenhouse gases, leather made from mushrooms, reishi, produces hardly any. And, fashion made from mushrooms has an interesting potential to generate much less waste than conventional leather because it's grown in a laboratory to precise product specifications.

Matt has experience in other industries. Most notably, he was the founder and CEO of Alphabet Energy. That venture ultimately failed. In part that's because he was trying to produce and compete with electricity. Electricity is a product that most customers aren't willing to pay a premium for. But with MycoWorks, he's taking a different path. Luxury products. Matt says that can be easier to scale than a commodity business. And he's also using the materials he's creating to create change, not just in fashion, but elsewhere too.

In building his company works with incumbents, companies like tanneries, that have been doing things the same way forever. And now he gives them new materials to work with that are more sustainable. So I started by asking him why he took his background in material and energy and turned to the work of fungi and fashion. Can you paint me a picture of the setting when you first touched this mushroom leather? And tell me how you got into that room?

Matthew Scullin:
Yeah, it's a very unique setting indeed. So I was introduced to the founders of MycoWorks, Phil and Sophia, through mutual friends.

Rebekah Emanuel:
You mean Phil Ross and Sophia Wang, co-founders of MycoWorks.

Matthew Scullin:
Phil Ross, who's extremely influential, credited as being one of the fathers of this field of biomaterials. He was one of the first to sculpt with biological organisms, sort of in the modern times as a sculptor 20, 25 years ago. And that led him down the path of learning this organism and figuring out how to make various materials with mycelium. He had built this clean room inside of it where he could grow the mycelium, and he had all of these examples, these beautiful examples of different mycelium materials that he had made; bricks, foams, leathers, things like that.

I was totally struck by the quality of these materials, their durability, their versatility.

Rebekah Emanuel:
Could you touch them?

Matthew Scullin:
Yes. They felt amazing. They felt like leather. They felt like other natural materials. And so I saw that there was a lot of potential in the technology and then left the meeting sort of thinking, naturally, "Well hey, really interesting materials. I wonder if anyone cares." Lo and behold, a couple of weeks later, Phil calls me up and says, "There's an executive from a major luxury brand who's flying in from Europe to meet with me, and I would love some help in this meeting. Could you come along?"

And I said, "Well, that's very interesting," of course, right. "Well, why is he flying over to meet you, Phil?" And he's like, "Well, he wants reishi. He wants this material. Everybody does. We're inundated with requests. We have an email account with hundreds and hundreds of emails from household names, name-brand fashion designers." And so that is really an unusual situation for such an early stage startup. So I was really compelled by that, and it really began to crystallize for me in sitting down and talking with this executive, just what the potential for this material is.

I mean, he said something, said a couple things that were very remarkable. One is that, like other fashion brands, they were trying to eliminate the use of their animal hides in the long run. They saw that the writing was on the wall, sort of like how it was for fur. And second is that they really despise this typical Silicon Valley story of, "Hey, we're going to disrupt your industry."

And this was something that I learned doing Alphabet Energy for 10 years is that this is not tech. This is not situation where you can reach everyone's homes electronically from the comfort of your garage, right? These are industries that are tangible, they're humongous, they're aircraft carriers. They don't turn on a dime, they have enormous inertia. And so you have to go in and partner with the incumbents in order to get your technology adopted.

Rebekah Emanuel:
And the incumbent was coming to you.

Matthew Scullin:
Right. It was clear that there was a huge motivation in the industry already to change, but they also recognized that a disruption story coming from Silicon Valley was nonsense. And I recognized that as well. We said, "Hey, look, if we're going to really have impact, then we have to work with the existing industry. We have to work with existing leather tanneries. We have to work with the best leather producers in the world, and we have to make something that is as good as what they're making already."

Consumers and brands don't want to sacrifice performance for sustainability. And that's really, I think, what entering the market in a field like clean tech or materials and in general entails, is that it's that these are fundamentally spreadsheet-driven industries, whether it's energy or it's luxury and fashion materials, these are things... Materials have to perform. They have a function.

And that performance, yes, it could be measured on things that might seem very qualitative, like hand-feel and aesthetic. But the fact is, these materials also have to have durability. They have to have tensile strength and you can measure things like softness and aesthetic uniformity and things that seem a little bit more nebulous or qualitative. I'd say there are two main challenges in bringing material to market. One is that you have to compete with what exists.

Rebekah Emanuel:
Yeah. Tell me about this. You used to work in a business in energy that was basically competing with commodities, and now you're working in an industry that's luxury, which is about as far as you can get from commodities. Tell me about the difference there and sort of why you chose luxury the second time around.

Matthew Scullin:
Yeah. Well, first of all, it was a very deliberate choice. You can invest all that time and money in a new material, but at the end of the day, you don't have any pricing power in most material markets, because you're competing with the existing commodities that might be in the market, like a microchip, or an advanced metal, or ceramic, or in the case of energy, like with the new solar material or in our case at Alphabet Energy a new thermal electric material, you're subject to the electricity pricing that's in the market or the oil pricing that's in the market.

Rebekah Emanuel:
There's always a cheaper alternative and it already works and the incumbents already use it.

Matthew Scullin:
That's it. Right. You're competing with something that exists and already works. That's right. And so initially, any material is going to be more expensive to make than what's already in the mass market, than what's already being produced. It is really hard. And the main challenge that any materials company faces is this classic chasm problem, right, where in order to have your unit economics really pencil out, you have to achieve scale. And how do you bridge that gap?

We learned through solars rise in particular, it's that, well, you can have these really great technologies, but at the end of the day, if China puts way, way more, orders of magnitude more capital into the scale-up, into bridging that chasm, with a technology that's much lower risk, Silicon, then they'll eat everyone's lunch, right? You'll get to a much lower price point the end of the day, and that will become the winning technology. And so this chasm problem in materials, I saw it that there could be a solution if materials could move closer to the consumer, if you could somehow decouple this commodity pricing from the early stages of the innovation cycle.

Rebekah Emanuel:
So you want adoption before cost matters?

Matthew Scullin:
That's right. And pragmatically speaking, all of these markets that materials sell into, whether it's leather or energy or whatever, they're all massive markets, right? That's one of the most fundamental and fascinating things about materials markets is that materials are used in everything. And so it's literally what everything is made of. So the markets are all humongous. The challenge is never finding a big enough market or... The challenge is actually picking the initial market that has a high price point, so that you can have pricing power, you can have gross margin in the early days, and that will allow you to get to the next point.

Rebekah Emanuel:
I see what brought you to luxury in your career.

Matthew Scullin:
What I really like about the fashion and luxury markets is that you do have these structures in place already that allow products to get to market in low volume at a much higher price point. And that actually increases their desirability, right? Limited edition runs of things, capsule collections. And if those are done right, then it offers a very interesting opportunity for a new material to create a big splash, enter the market, allow you to measure demand, increase demand through having a big splash, through the publicity that they can get. And then from there, using that traction to go and increase production capacity, bring the cost of goods sold down, and scale up and reach a larger market. MycoWorks seemed like a very interesting opportunity to try to take new material into market, via fashion and luxury, on a path to having this material get into many other markets that stand to be disrupted by biomaterials and the idea of growing materials rather than getting them from other sources.

Rebekah Emanuel:
Tell me about that.

Matthew Scullin:
There are huge advantages to being able to grow a material, particularly to grow material locally. If you think about a supply chain for leather or plastic, you're talking about, first of all, in the case of animal hides, you're talking about a very uncontrolled source of raw material, which is your cow hides. So you're sourcing cow hides from different farms around the world. Those cow hides get shipped to different tanneries around the world and ultimately end up in the hands of fashion brands. Those fashion brands then throw out a lot of that material that they buy, because first, some of the hides might have mosquito bites or brand marks or other things that make them not usable because they weren't controlled initially for leather production.

And then second, the interior of a hide, the belly is going to have a different pattern than the exterior. The hides is arbitrarily shaped, and you have to cut other arbitrary shapes into it. So you end up with a lot of waste. And those waste numbers in the fashion industry are a pretty closely guarded secret because they're so high. There's just so much material that isn't used. That of course cuts into the margins of the fashion companies producing this material and their finished goods.

But it also is just a general inefficiency in the economy. I think when it comes to plastic materials as well, the market for plastic leathers is three or four times larger than the market for animal leathers. So it's quite significant. And combined, the market for animal and plastic leathers is over a hundred billion dollars a year.

And so with plastic, you're also talking about something that, well first of all, has much lower quality than animal hides, but is essentially one thing, right? It can't be tuned or customized in any way. And so in growing materials, it offers the opportunity to, first of all, grow exactly what you want. Exactly what the customer wants, if they need a certain size or certain shape, but moreover, a certain level of uniformity, a certain thickness, those are all basic things that we can offer with reishi that an animal hide or a plastic can't offer. But then beyond that...

Rebekah Emanuel:
You're telling me that if I wanted leather for a skirt, you could grow me skirt-shaped shapes?

Matthew Scullin:
We have shown that yes, we can grow into specific shapes, but I think more importantly, a different type of leather is used for skirt, for ready to wear skirts or ready to wear, than it is for say, handbags or shoes.

Rebekah Emanuel:
So you can grow thicker, thinner, bumpier.

Matthew Scullin:
We, we do grow different materials based on the customer's application. We can tune the mechanical properties of that material in addition to sort of the basic size and shape, the geometric properties. And then ultimately, with the green chemistry that we've developed, which is far cleaner than the chemistry that's used with animal leathers, that's typically relying on chromium for tanning, which ends up poisoning groundwater, this nasty stuff. We can grow materials for a certain type of post-processing tannage for dying as well. And so it really unlocks all of these possibilities for fashion designers. It allows fashion designers to say, "Hey, now I can get exactly the material that I want, and my designs are not limited by the supply that's available in a given year, given season."

Rebekah Emanuel:
You can see why this is... Someone's creative juices could get flowing here, because you're telling me that it's possible to get what you want at zero waste.

Matthew Scullin:
That's right. And not only is the yield effectively higher in that regard, but the carbon footprint is far lower. So there's a great element of storytelling, of course, but really, to the consumer, it's about the value system that's behind the goods that they're purchasing. As an example to just sort of illustrate how much this industry could improve, you can walk into a restaurant and know right away when you look on the menu, what farm the cut of meat that you want to order is from, and you don't even have to go to a really nice restaurant these days to have that information at your hands. I would ask anyone to try to come up with the farm that their favorite leather good is from, right?

We have no idea. And so part of the added value of being able to grow your own materials is that you have this transparency through the entire supply chain. You have traceability, you have the ability to go to the consumer and say, "Look, we know exactly how this material was made. We know exactly where it's from."

In the future, we have the vision to co-locate our reishi production plants with our customers' fabrication plants, or at least have them be much closer to the customer, which further eliminates carbon footprint, but of course also allows the customer to react to changes faster and get product to market and new skews, new types of products to market quicker. We really think that the innovation behind growing a material like reishi is more like the woven technology that's taken over the sneaker industry, like 3D-knit and fly-knit, where now a sneaker company can, on demand, whip up new styles, zero waste, get them into market very quickly. That's what reishi offers. It's really an advanced manufacturing technique that opens up new possibilities for designers and brands.

Rebekah Emanuel:
Okay. So Matt, tell me why is this low carbon? You've talked about, maybe it travels less, also clearly mushrooms tend to eat dead material out there in the world, right? So there may be something there.

Matthew Scullin:
That's right.

Rebekah Emanuel:
But is it about the growing conditions? What about it makes it lower carbon than a cow?

Matthew Scullin:
That's right. Well, when we produce reishi, we are using waste biomass. And so that biomass is carbon that has already been extracted from the atmosphere. And so we're converting some of that biomass into our reishi sheet.

Rebekah Emanuel:
You're telling me you're capturing carbon?

Matthew Scullin:
In effect, that's sort of what biomass is doing, right? We are converting that captured carbon and biomass into reishi. So reishi is literally made of carbon that's been pulled out of the atmosphere. And so the reishi production process itself is carbon negative in that sense. It then of course, ends up moving around the world. It ends up being tanned, albeit with a very green chemistry compared to what's used for traditional animal leather tanning, but the overall carbon footprint ends up far, far lower than that of animal hides and that of polyurethane or PVC leathers.

Rebekah Emanuel:
Both of which are from classic... Cows are a classic issue for carbon and oil-

Matthew Scullin:
That's right.

Rebekah Emanuel:
-byproducts are a classic issue.

Matthew Scullin:
Right. The fundamental way to think about it is, with an animal, you are inputting a lot of carbon into the growth of that animal. And with the reishi process, we're actually converting biomass that has used carbon, that is made from carbon, from the atmosphere into reishi. So it's carbon negative.

Rebekah Emanuel:
Great. So tell me just a little bit about the characteristics of this thing. You get, somehow, durability, but also biodegradable characteristics. That sounds sort of like an oxymoron to me.

Matthew Scullin:
Coming back to this idea that these are all spreadsheet driven businesses and that performance is key. The focus that we've taken at MycoWorks is to build materials that are of the utmost quality in the industry, right? And that doesn't mean-

Rebekah Emanuel:
You're the Tesla of leather.

Matthew Scullin:
-the best quality. Right. That's a great analogy. We liked that analogy because Tesla did not get adopted because it was an electric car. There were a lot of electric cars before Tesla. Tesla saw adoption and is seeing adoption because it is the best car, right? Because it provides the best overall experience, electric or otherwise, to a driver. And it's because an electric car allows you to have faster acceleration and all these other things that, like growing a material, are advantages to the user. To use that analogy, our user in that sense is the fashion designer who sees these added advantages of a grown material versus a found or harvested material.

But then going to the consumer, a leather is something that has to be durable. It has to age, it has to evoke a certain emotion and that's something that reishi can do as well. And that is something that is inherent to this very proprietary fine mycelium process, as we call it. We don't make "mushroom leather". MycoWorks made mushroom leather many, many years ago, and it's what our competitors still make to this day. But we've pushed that process forward and make something that we call fine mycelium. And that fine mycelium has a really tightly interwoven cellular structure that gives it this incredible durability.

So we actually sort of try to mimic the structure of collagen in skin, which is wrapped very tightly and makes skin very tough compared to, say, just pure collagen that's in makeup or another liquid form. So the durability that we get is really the underpinning of any performance material. And it's what has allowed us to get any commercial traction whatsoever.

Consumers, they don't want to sacrifice performance for sustainability. Brands don't want to sacrifice performance for sustainability. So with this approach of putting quality and performance first, we've been able to get traction. Sustainability for us is just another performance metric now, right? Consumers expect materials to be sustainable. You have to add that to list of the other things that they already expect, like strength, like durability, like hand-feel, like aesthetics.

This is key to understanding reishi and to understanding this fine mycelium process, and is why I think not only are we getting adopted right now, but when you combine this high performance with this platform that we have for tuning the properties as it grows, one can see why this could potentially totally transform the fashion industry and lead to new types of supply chains that will allow designers to make fundamentally new things.

Rebekah Emanuel:
So it sounds like you're talking to people who are making decisions because they get their creative juices flowing. They can do this more cost-efficiently, because there's a lot less waste, a lot less travel. They can get exactly what they want. And also it sounds like they're getting pressure from their consumers.

Matthew Scullin:
I think that there are very significant current tailwinds that are propelling us right now, one of which is the consumer-driven animal rights and general sort of anti-animal or alternative protein movement. The second is the very powerful anti-plastic movement. I think both of these have undergone a significant shift over the past couple of years.

I think on the plastics front, it was when all those headlines were hitting about microplastics. And all of a sudden the world realized, "Hey, plastics are not someone else's landfill problem. They're actually my problem. When I purchase plastics, these things end up back in my food and they become a health and wellness issue." And health and wellness, I think right now, is the strongest secular tailwind in the consumer economy, in the world today.

And I think on the alternative protein side, what we saw over the past couple years is the emergence of brands like Beyond Meat and Impossible Burger, who illustrated very clearly that if you do match the quality of things that are out there, if you stop trying to compete with all the veggie burgers in the veggie burger section, and you try to compete with meat, and if you can actually achieve that, then it opens up an opportunity for consumers to be non-binary vegan. To not be vegan or not vegan, but to be vegan for a meal.

And I think that these trends are also propelling MycoWorks because consumers feel the same way about what they put on their bodies and generally about what they purchase. They want things to be non-animal, non-plastic. They want to know they have a low carbon footprint and are not going to be a health and wellness issue either for them or for future generations.

But I think what's very interesting about the customers that we have is that while they are under acute pressure right now to respond to these trends from their consumers, they're also under pressure to respond to these broader trends around how do you stay competitive in an industry that now needs to get to the consumer faster, needs to supply more skews, needs to be more global, and needs to somehow balance and manage these competing shifts that we're seeing around fast fashion, being a very powerful force, as well as sustainability being a very powerful force, right? These two things are at odds.

We have developed reishi in close collaboration with some of the best brands in the world. I think it's really just the beginning of many of the very cool new materials that we can bring to market, both in fashion and luxury, and then other industries beyond that.

Rebekah Emanuel:
How are you doing on crossing this chasm? Speaking about demand. My understanding is you got a couple of factories open and you might have just raised another round to open another factory.

Matthew Scullin:
Yeah. So we just closed a $45 million Series B. Thank you. And we are on a path to opening additional factories. That's right. So we're currently planning on opening a couple other factories, both in the US and internationally. So we're undertaking the engineering for those plants right now. I think that, coming back to the clean tech analogies, one of the keys in crossing the chasm for a materials company is to figure out how you can make your business and your scale-up project financeable.

Partnerships become incredibly critical to scaling up as well. So we have very gladly partnered with a lot of the leather incumbents in the industry, the tanneries that produce leather. They're key to eliminating bottlenecks in our scale-up. And then we're also drawing on a lot of the technologies that other industries have been using for a long time to move trays around facilities, because our process is executed in a tray, and our manufacturing is really about handling trays.

Rebekah Emanuel:
By trays, you mean like a metal flat thing?

Matthew Scullin:
Yeah. Yeah. I mean literally a tray. We use these enclosed trays and our secret sauce, the magic in the trays is that we have these trays that we've specially designed and that Phil, our founder toiled away at for many, many years. And then, we've had a huge team of biologists and fermentation engineers and mechanical engineers working on improvements to that tray, and we've arrived at a tray that grows a perfect sheet of reishi.

So from a scale-up point of view, it's very, very scalable because we can just go and fill a facility with more trays. And the process is fundamentally simple and inexpensive and allows for-

Rebekah Emanuel:
Easier than getting more cows.

Matthew Scullin:
Yeah. Easier than also changing the size of the tray. Right? A lot of materials technologies end up seeing these fundamental limits on their economics because you have to change their unit cell size, right. Solar, the only way it could get cheap as if you could do much, much bigger areas of materials. So a lot of technologies died because it was hard to make them that large. Same with fermentation, a lot of processes can't scale to the 10,000 liter or more size that you need in order to hit good fermentation economics. So the tray-based system is very beneficial from a cost and scalability point of view, and has us very optimistic about our path to crossing that chasm, project finance likely playing a major role in doing so, and ultimately, being a very, very massive business.

Rebekah Emanuel:
Tell me what advice you would give to others considering a career in climate tech.

Matthew Scullin:
Well, the advice I'd give to any aspiring entrepreneur is to dive in. There is so much you're going to have to figure out, and there is so much that's going to change. That it's impossible to do any of that without fully living it. You really just have to go for it. And chances are, what you ultimately ended up doing, could be very, very different than what you initially set out to do, and that's a good thing. You've got to learn and adapt. And the only way to do that is to jump into the deep end.

Rebekah Emanuel:
That's it for this episode of Climate Rising. Next time, the connection between climate change and insurance.

Speaker 3:
So if you think about major hurricanes that hit an area that would have normally not all gotten hit at once, so the entire Gulf Coast doesn't get slammed at once, usually. But now with climate change, we're seeing more intense and more frequent storms. And so you'll have more correlated claims that put insurance portfolios at risk.

Rebekah Emanuel:
Thanks for joining us. I'm your host, Rebekah Emanuel. This is Climate Rising, a podcast produced by the Business and Environment Initiative at Harvard Business School. This episode was made possible by the collaboration between this episode's associate producer, Roxanne Tully, HBS class of 2021, producer Mary Dooe, and our team from the HBS Business and Environment Initiative. Faculty chair, Mike Toffel, and Jennifer Nash, Lynn Schenk and Elise Clarkson. Thanks for joining us. You can subscribe on Apple Podcasts or wherever you listen, and please leave us a review. We appreciate the feedback. You can also find show notes and links to resources discussed on this episode, on the Climate Rising homepage, climaterising.hbs.edu.