Innovation

Winner: Growth becomes her

Written by Rick Spence

Joyce Groote won’t ever forget January 21, 2000. As president of Canada’s biotech industry association, that’s the day she got a cream pie in the face.

Being “pied” isn’t as funny as it sounds. It was Day One of a conference in Montreal on developing international safety protocols for genetically modified foods, and a group of radical consumer advocates were demonstrating their opposition to “Frankenfoods.” Although Groote gamely laughed it off at the time, she was shaken by the attack. It made her question what she was doing with her life and career. She still believed in the potential of genetically modified organisms, but the constant negativity around the issue made her eager to work on something new: “I realized I had to go out and make my own way.”

Resigning as president of Ottawa-based BioteCanada, she moved with her husband to Vancouver, where she got involved with early-stage biotech companies and founded an angel-investor network specializing in life-science companies. But not even Groote could have predicted what happened next: lending money to an injected-foam shoe company at the leading edge of a hot footwear trend, then becoming its owner and CEO as it began a life-or-death struggle with a rival 30 times its size. But the president of Vancouver-based Holey Soles Holdings Ltd. says it’s all part of the same plan: exploiting a technology-based opportunity and using all her energy and organizational skills to help it reach full potential.

When Groote was named interim president of Holey Soles, which was started by a neighbour in a garage, the firm had annual revenue of just $52,658. By the year ended Feb. 28, 2006, sales had leapt to $3.5 million. That’s a two-year growth rate of 6,568%, fast enough to top the 2006 PROFIT HOT 50 ranking of Canada’s Emerging Growth Companies. And according to Groote, there’s much more to come.

Holey Soles is riding a wave. Comfy, candy-coloured plastic clogs were the hottest thing on the beach this summer. The $25 shoes float, resist odour and adjust to fit your feet. The best-known brand is Crocs, produced by Colorado-based Crocs Inc., which started selling its so-ugly-they-must-be-comfortable clogs in 2002. While several companies now sell similar shoes, Holey Soles considers itself No. 2 in the market, and is determined to give category giant Crocs a run for its money.

Founded in October 2002 by Vancouver psychologist Anne Rosenberg, Holey Soles sourced its product from the same company as Crocs: a Quebec City manufacturer, now called Foam Creations Inc., that was developing new applications for its pressurized polymer foam. The non-slip, unisex clogs proved an instant hit. But Crocs, founded by three partners from Boulder, Colo., cut out its rivals by buying Foam Creations in 2004 and keeping all the supply for itself.

To help Holey Soles compete, Rosenberg recruited Groote, who was assisting B.C.-based growth businesses. Groote brought sophisticated management to the fledgling company, writing a new business plan, designing its own improved clogs (which are narrower than Crocs, for a better fit), outsourcing manufacturing to China and entering the U.S. market to challenge Crocs on its own turf.

It was a big change for Groote, a former Agriculture Canada bureaucrat who was more at home addressing global symposia than packing shoeboxes. Even after moving to Vancouver, she took a big-picture approach: the Life Sciences Angel Network she established with a group of sophisticated B.C. investors raised $100 million for life-science companies in just three years. Groote even started her own venture-capital fund, Building Biotech (VCC) Ltd., raising $325,000 from 13 investors. It has invested in 10 companies, and has already had one successful exit, generating a 20-fold return on Victoria-based Aspreva Pharmaceuticals Corp., which develops new applications for existing medicines.

But when Groote got the call to save Holey Soles, she rolled up her sleeves as a full-time entrepreneur, looking at new ways to expand the company, introducing more professional processes and creating a formal board of directors. Heading Holey Soles is no day at the beach: last year Crocs sued Groote’s firm for trademark and copyright infringement. Holey Soles counter-sued, hoping to prove that Crocs’ designs aren’t protected by copyright.

Crocs might have thought it could intimidate Holey Soles. (Three rival distributors threw in the towel rather than face Crocs’ litigation.) But Groote knows intellectual property. As a grad student in genetics at the University of Alberta in 1986, she was the first person ever to isolate and clone the DNA of a tree (the sturdy lodgepole pine). That kind of rigorous training gave her the confidence to fight back against Crocs’ legal firepower. “Their claim is really flimsy,” says Groote. “Their main objective is to drain people of money, because they have a lot of it.”

Indeed, Crocs had sales of US$109 million last year. Early this year it went public, raising US$100 million-and attaining a market capitalization topping US$1 billion. By comparison, Groote’s hopes for Holey Soles seem almost modest: her plan calls for $50 million in sales within five years. (It recently recorded its first $1-million month.)

Groote’s plan never included buying the company. As interim CEO, she, along with her husband Rick Walter, loaned some money to Holey Soles. When the firm couldn’t pay them back, they became partners in it. A few months later, chafing at how long it took the partners to reach decisions, Groote exercised a shotgun clause. She offered Rosenberg and a minority shareholder the chance to buy back her and Walter’s half at a specific price. When the founders decided not to buy, Groote bought them out at the predetermined “strike” price.

“They’re very good at starting things, but it got to the point where every decision was agonizing,” says Groote. “We had to make decisions faster.” She says she and Walter would have been happy to walk if Rosenberg had wanted the company back, “but when we became owners, we took it on with a vengeance. We really set out to grow the company.”

Today, Groote is working on a three-point plan: to wow distributors and retailers with first-class service (Holey Soles’ new U.S. distribution centre at a DHL air-express hub near Cincinnati enables next-day shipping if required); expand internationally (exports now account for half of sales); and expand the product line to include new shoe designs and accessories.

“We want to be a lifestyle-product company, not a shoe company,” says Groote. “Our shoes will be the foundation of our lines.” Example: Holey Soles’ boating shoes could inspire a family of accessories, from specialty hats to carryalls, all sharing lightweight construction, a bright colour palette and cheap-chic image. Groote says the firm is working with international shoe and fashion designers to produce its new lines, which will be sold through sports stores, gift shops, clothing boutiques and shoe stores.

The onslaught begins this fall, as Holey Soles expands its offerings beyond clogs to include an open-toed sandal, a flip-flop and a secret third design that Groote calls “a departure from everything we’ve been doing.” She sees innovation as the key to creating a unique brand identity and distinguishing Holey Soles from other foam-clog suppliers. “We believe we’ll out-compete Crocs,” Groote declares.

Who’s buying all these shoes? Beachcombers, boaters, backpackers, gardeners and even doctors and nurses who find the lightweight clogs perfect for 12-hour shifts. Mike Volker, a Vancouver entrepreneur and angel investor who runs Simon Fraser University’s Industry Liaison Office, is a huge fan of them. He has bought 100 pairs in the past two years (using his friend-of-the-president discount). He and his wife wear them at the beach, hiking and travelling. They keep extra pairs on their boat for guests whose street shoes might scuff the deck. And they use them as hostess gifts when visiting friends. “People really like them,” he says. “They often call us a week later, wanting to know where they can buy more, because they want them for other members of the family.”

Volker says Groote brought inspiration and organization to Vancouver’s biotech community, but he understands her decision to back out of the angel network in favour of Holey Soles. “I just wish I had a little position in the company,” he says.

Next to Crocs, Groote says, her biggest challenge has been to find the right people at the right time. Holey Soles now has about 60 full-time staff, up from six two years ago. “When a company is very small, you look for people who are generalists-flexible people who can do a lot of different things, so you get the maximum from them,” she notes. “As a company grows, you look for increased specialization.” Groote says she’s now in full-time recruitment mode, using all available channels, including ads, personnel placement firms, personal networking and employee referrals.

At 49, Groote has a dozen years on the average PROFIT HOT 50 CEO, and believes her consulting and lobbying experience gives her an edge. “Although there’s a perception out there that it’s a big gap between the private and public sector, a lot of the skills are transferable: organization, business planning, setting objectives, accountability.” Still, she concedes the move from designer genes to designer clogs has been “quite refreshing.” In biotech, she says, projects can be highly abstract, and results may take years. “It’s nice to deal with something you can touch and feel.”

But how long can the foam-clog trend last? Marita Winaut, manager of an Oh My Sole! shoe store in Halifax, was selling 25 to 30 pairs of Crocs every day this summer — and fielding calls for more. Still, like many in the industry, she doesn’t expect it to last: “I say it will go strong for one more summer, and then it will dwindle down.”

“Fad?” responds Groote. “That’s what I thought the first year I became involved. Boy, was I wrong.” Still, she admits that every product has a life cycle, which is why she has the innovation machine turned to high. “We want to diversify our product line as much as possible to keep prices high, control customer service and spread the risk.” Clearly, she thinks Holey Soles has the genes to become a really big shoe.

Evolution of a star entrepreneur

1986

As a grad student in genetics at the University of Alberta, Groote becomes the first scientist to isolate and clone the DNA of a tree

1997

After years working on biotech policy for Agriculture Canada and then running the Food Biotechnology Communications Network, Groote is named president of the Industrial Biotechnology Association of Canada. She leads a merger with another industry association to create BioteCanada, an Ottawa-based national industry lobby group

2000

After being “pied” at a conference for her support of genetically modified foods, Groote moves to Vancouver to work with early-stage biotech companies

2002

Groote establishes the Life Sciences Angel Network, a bimonthly meeting of investors and entrepreneurs that helps raise $100 million for biotech companies in three years

2004

Groote joins Holey Soles as interim CEO. That December, she and her husband, Rick Walter, buy out the founder and take control. In 2006, Holey Soles tops the HOT 50 list with two-year growth of 6,500%.

Originally appeared on PROFITguide.com
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