This post was co-written by Pauline Guého from Heartcore Capital and me. It’s our attempt to understand the rise of Gymshark and how they managed to become a billion dollar company with no outside funding until now.

A few weeks ago, Gymshark raised £200 million pounds from General Atlantic at a valuation of over £1 billion, minting the company as one of the latest European unicorns.

Gymshark sells gym clothing exclusively online but it is not your typical venture-backed DTC company: they are raising outside capital for the first time. Nevertheless, the firm generated £200 million of revenue in 2019 with a 66% gross margin and a team of only 250 employees.  

Queue your mind exploding.

The company grew their way into unicorn status by exploiting the right marketing channels, administering capital efficiently, and managing their talent in an extraordinary way.

Gymshark operates and grows differently than most venture-backed companies, and the key to understanding why lies in their origin story.

Starting in Birmingham

Gymshark was started in Birmingham in 2012 by a 19 year old student called Ben Francis as a dropshipping site selling health supplements to fitness fanatics.

While generating some cash from dropshipping, Ben decided to invest time in making his own products: "I remember looking around, and I couldn't find any clothing I wanted to wear so I said, ‘let's make it ourselves.’"

Enlisting the help of his brother and a group of friends, Ben bought a sewing machine and a screen printer and started to make gym vests and t-shirts in his parents' garage.

The first Gymshark product was a bodybuilder vest for slim teenagers who just started going to the gym. It was a hit immediately because similar products on the market were designed for older men who had already built up their muscle.

Unwittingly, Francis was taking a page out of the commandments of Paul Graham: make something a small, underserved group of people really want and scale manually from there.

The first sign they were making something people wanted came from BodyPower, one of the premier fitness tradeshows. Ben Francis recalls: “We literally emptied our bank account on the tradeshow floor.”

As the Gymshark team continued developing new products and preparing for upcoming trade shows, Ben kept an eye on Youtube fitness celebrities like Scott Herman and as soon as he saw the opportunity he sent them some of his team’s products.

This was back in 2012 when influencers didn’t yet feel entitled to free dinner for posting a photo of the meal, so the swag was well received and fitness celebrities started raving about the company they had created “this cool, quirky brand that was speaking to the community when no one else was.”

This kicked-off the initial traction, and during the next BodyPower, Gymshark was flooded with orders. Ben reflects how, from the second the door opened, their booth was packed: “It was absolutely insane. I had never seen so many people interested in a product, and it was unmanageable.”

But it didn’t stop there.

When the team got back from the tradeshow, Ben put up more stock, as they’d made most of their products out of stock online to focus on managing the trade show. Within the first 30 minutes, they had more traffic and more sales than they had the previous year.

It was time to scale.

Mimetic Desire as a growth engine

Crafting a brand is like building the foundation of a house. Everything grows from there so if you don’t get them right, you can’t build much on top. But unlike a house, you have to create your own brand yourself or the market will do it for you.

Gymshark set some rock solid foundations from the start: they positioned themselves as a “visionary” brand that aspires to help individuals improve themselves by making them feel gorgeous and empowered.

Their body sculpting clothes fit gym beginners and professionals, and the brand resonates with both – for newbies, Gymshark is the coach they look up to and for pros, that successful friend they respect.

This was the perfect footing to exploit their first channel: fitness influencers. After their initial success, they doubled down on the strategy and began signing deals with dozens of Instagram celebrities like Ross Edgley and Natacha Oceane, and 18 different professional athletes they call Ambassadors.

Influencer marketing was, without a doubt, an immense part of their initial growth and why they grew 200% from £5 million in 2013 to £15 million in 2016. But these tactics can’t be replicated in 2020 because the channel is now overpriced, saturated and not that profitable.

But what is interesting is the framework Gymshark uses for assessing growth opportunities and selecting marketing channels – generating mimetic desire at scale.

Mimetic desire is a concept that comes from French anthropologist and philosopher Rene Girard’s Mimetic Theory. The best explanation I found of the idea is from Julian Lehr in What Shopify and Amazon Can Learn from Mimetic Theory:

The core idea behind mimetic theory is that human development is based on imitation. What sets humans apart from other species is our ability to learn by observing and copying others. According to Girard, this includes watching and imitating what other people desire.

This is not something most of us are aware of. We think we make autonomous purchase decisions based on objective facts (“These shoes are waterproof”) or personal preferences (“I like the way these sneakers look”).

In reality though, Girard argues, there is never a direct relationship between subject (the consumer) and object (the product). Instead, the relationship is always triangular between the subject, the object and a so-called mediator – someone the subject is drawn to and wants to imitate.

To summarize: we don’t actually want the clothes, we want to be like the person we admire so we end up buying the clothes.

Gymshark’s brand and the growth strategy that sits on top can be summarized as a consistent search for channels that provoke mimetic desire at scale.

Evidence is on the channels they’ve exploited (and discarded) so far:

They started with (1) trade shows but abandoned them after the first signs of product-market fit and replaced them with an (2) online store what we now call (3) influencer marketing, which they pioneered and mastered. In recent years they’ve abused (4) pop-up shops with fitness celebrities and built a comprehensive (5) social media strategy with over 5 million followers across multiple platforms and tailored content for each.

Influencer Marketing is an explicit effort to induce mimetic desire by having influencers, personal heroes and celebrities use the Gymshark clothes.

Ross Edgley uses Gymshark. Ross Edgley also swam around Great Britain in 74 days, ran a marathon pulling a Mini Cooper and did a triathlon carrying a freakin’ tree and. Damn right men want to be Ross Edgley so they will buy the clothes Ross Edgley uses.

Social media and pop-up shops (where athletes like Ross Edgley show up) are just a natural extension of that foundational influencer marketing strategy, and a fantastic way to amplify the visuals and induce mimetic desire to millions of potential customers.

Previous actions are great evidence of how Gymshark thinks but we should also look at the bets they are making right now: Youtube.

Influence marketing has become expensive and too competitive, so they are just becoming the influencers themselves, starting with a Youtube channel where Ben Francis – who is a good-looking, athletic 28-year-old millionaire – vlogs about his life and running Gymshark.

Cutting through the noise that is the internet today has become extremely difficult. It also takes a high-risk profile, as you enter channels with no previous data to back your decision. But Gymshark has been able to do it by keeping one thing in mind: a French philosopher who passed away 5 years ago.

Gymshark’s profitable demand loop

If you live in the world of atoms, growth is not everything. We’ve all seen ecommerce startups with millions in revenue crash and burn because they couldn’t support the embedded growth obligations that come with venture capital (aham, Nasty Gal).

Gymshark didn’t take venture capital. It’s hard to assert with confidence why – my guess is that 19 year-old Ben Francis had no idea Accel existed – but whatever the reason was, not raising money meant Gymshark had no other choice than to be a sustainable, profitable business.

But how does a young startup generate AND manage cash in a capital intensive business like ecommerce where producing products overseas forces you to pay for inventory 100% upfront?

You only buy inventory you know, with 100% certainty, you can sell quickly. And the way to do that is to manufacture a fraction of what a normal company would. If you think you might sell 90 or 100 t-shirts, then you manufacture 50.

If you have a limited sales history, then forecasting sales for each product is always a challenge, and when you have to manage cash flows, you don’t want to put too much of it in inventory.

The second-order consequences of manufacturing under your sales forecast is that some percentage of your customer base won’t be able to get the product, even if they wanted to. This generates scarcity and FOMO, fueling demand for the following run. So next time, you manufacture 65. And then 85. Rinse and repeat.

Gymshark ran a growth & manufacturing flywheel that allowed them to only produce what they were guaranteed to sell, which generated scarcity, fueling future demand.

It goes something like this:

  • Manufacture product in limited quantities to conserve cash
  • Post online and sell out
  • Generate scarcity and FOMO
  • Fuel demand for future runs
  • Slightly increase batch size

At first, this loop was probably a lucky accident. But even though they’ve grown to hundreds of millions in revenue and leveraged their size to get better payment terms with their suppliers, they are still doing the loop, producing only what they are certain will sell and less than what they customers will buy.

This is their site on Black Friday.

Managing talent and building an executive team

Talent is the lifeblood of every organization. Get it right and you can build a lasting company that becomes a magnet for talented people but if you don’t, slowly but surely, Gresham’s Law will end up eating your team from the inside out.

By virtue of being based in Birmingham, Gymshark plays a different game than most technology companies who have to compete for engineers with Facebook and other Big Tech companies. Nonetheless, they’ve built a strong company culture of “talent without limits.”

Titles are given to support employee growth (vs. Facebook titles shortage policy), they constantly invest in their people through coaching programs and they’ve built a beautiful flagship HQ with a cafeteria and a state-of-the-art training facility.

This growth culture is embodied by people like Gemma Hulbert, a talented data analyst who became chief data officer (and a member of the board) in five years.

But the most important factor of Gymshark’s talent culture has been recognizing its own limits.

In 2015, Sportswear industry veteran Steve Hewitt joined as managing director, before being given the chief executive title last year, and Ben Francis, the owner and former CEO, moved to CMO, a position he was a lot more suitable for.

Bringing a more experienced pair of hands to help run a capital intensive business like Gymshark has been a critical factor in the continuing success of the company.

Going global and being disrupted

Throughout its life, Gymshark has managed to grow at incredible speed and double their business every year for the past 6 years – £5 million in 2014, £10 million in 2015, £15 million in 2016, £50 million in 2017, £100 million in 2018 and £200 million in 2019.

The funny thing is they did this in a healthy way, becoming the perfect example that not being VC-funded doesn't result in being crippled with debts.

But it looks like the shark got hungry now.

Gymshark raised £200 million to expand the business in Asia and North America, where the company already makes 40% of its sales and just opened an office in Denver. Here’s Ben Francis for the Financial Times:

“We are nothing without our community so we will use this new investment partnership to get even closer to them on a truly global scale. I firmly believe Gymshark has the potential to be to the UK what Nike is to the US and Adidas is to Germany.”

For the £200 million, US private equity firm General Atlantic is taking a 21% share in the business, valuing it at +£1 billion and making Gymshark one of the only two UK businesses to become a unicorn without having raised outside capital before.

But the “We never raised money, we can do whatever we want” ship has sailed now. With capital comes embedded growth obligations and Gymshark needs to keep the pace.

The question is whether the online market is big enough for them to continue the pure DTC model that got them here or not. Gymshark might be forced to abandon their niche online-only business model and go mainstream with TV ads, sponsoring NFL players and fighting for retail space.

Going offline with a more balanced distribution strategy requires more (upfront) capital and a completely different knowledge set. For instance, Gymshark has never done TV advertisement before but will they need it to sponsor the Super Bowl to go after Nike, Reebok and Adidas?

Gymshark has grown as a gym-enthusiast brand by generating mimetic desire and doing one job extremely well for their very niche customers: feeling good on the inside and the outside.

But even though online commerce is exploding, at some point, Gymshark will have to move away from the gym-enthusiasts and appeal to light category buyers with a preference for one simple product that accomplishes most of their jobs relatively well.

The more it adds SKUs, the more it reaches new audiences and grows into an active lifestyle fashion company. Gymshark doing swimwear is a good example of its mainstreamization strategy. The next logical step to deploy the £200 million is conquering the offline world and reaching out to non-digital natives customers - a huge untapped category buyers segment.

As it grows mainstream and entices more light category buyers, the brand might face a decrease in loyalty. “Loyal switchers” are the new norm for big brand customers, and this might change the company’s long-term strategic focus on mass acquisition.

If you want to kill Nike, you have to get closer to its size. But if Gymshark becomes Nike, then they are exposing themselves to disruption by a new version of Gymshark.

Will its high brand relevance muscled by DTC data capabilities enable loyalty at scale? How does this set them up to be disrupted by future entrants? If they become Nike, where will we see the next Gymshark? Maybe we should look at what the TikTok kids are doing.

Thanks to Max Cutler for reading (horrible) drafts of this.