A multi-layered critical reflection on how the concept of mechanical textile recycling and hands-on experiments can lead to a more sustainable textile future and at the same time leads to an adaptation of existing systems within the textile value chain. How can a new valuable raw material be obtained from post-consumer textile waste (PCTW)? How can this material be processed and integrated into the textile production chain, and what kind of products can emerge out of it? The discussed applied research project, called Texcycle, was organised by the Product & Textile Research Group at the Lucerne University of Applied Sciences and Arts. The research questions mentioned above were approached step by step with the industry, and new solution strategies were sought in the individual process steps with the partners. The main partners were a textile recycling and sorting company, TEXAID Textilverwertungs AG and the wholesaler Coop Genossenschaft. As the project proceeded, a wool spinner, a nonwoven specialist, and a carpet manufacturer joined for prototyping the products. Texcycle is an Innosuisse financed project that promotes knowledge-based innovation in the interest of the economy and society and supports the collaboration of research institutions and the Swiss industry. Therefore, sustainable textile products produced from local waste streams can act as vehicles for change in the textile industry. The development of products from waste streams is highly complex. In addition to the traditional stakeholder of the textile industry, it also concerns new actors such as the waste and sorting industry, which have to acquire knowledge about the processing of used fibres. The proposed solutions are based on new insights about material composition in the waste stream due to the investigation of fibre content in existing key sorting categories. As a result, new material-orientated sorting categories are proposed, not yet established in the market since the main focus is on types and quality. Due to hands-on material design and development with PCTW, requirements and material properties to replace the virgin stock in the textile production chain were identified. The executed development of yarn and nonwovens in this project demonstrates, on the one hand, feasible future applications and is also a proof of concept from a design and market perspective. The resulting artefacts are key for future adaptation in sorting and production facilities yet an initial change in this complex system. This article focuses on the Soft Systems Methodology (SSM) described by its developer Peter Checkland in relation to the material-led design research project Texcycle dealing with post-consumer textile waste. With its origins in system thinking, the soft-system methodology allows an analysis of complex interlinked structures and further uses models of activity to set up a debate about change.