Gymshark (UK) is well known for how it entered the highly competitive activewear category and created a brand that sells out sometimes within hours of dropping a new collection. How they grew the brand from nothing to where it is today has become one of the online startup legends. However what often doesn’t get discussed is how the company managed to bootstrap its way to revenue of $243 million by 2019 - with $24.8 million in operating profit and $41.4 million cash in the bank. The key is the company’s cash conversion cycle (CCC), a measure of how many days it takes for a business to turn invested cash (usually purchased inventory) back into cash in its bank account. The formula is: <strong>Days Inventory + Days AR - Days AP </strong> Gymshark's CCC is -101 days. <a href="https://twitter.com/search?q=%24AMZN&src=cashtag_click">$AMZN</a> = -21 days <a href="https://twitter.com/search?q=%24WMT&src=cashtag_click">$WMT</a> = 2 days A negative CCC means that your vendors finance your operations and no extra cash needs to be invested as you grow. But most ecommerce businesses have CCC's between 40 to 100 days. If you sell $3k/day, that means $120k-300k cash is stuck in operations, instead of in your bank account. Optimizing their CCC has allowed Gymshark to grow an ecommerce business being cash-rich vs. cash-poor. <strong>There are three levers Gymshark was able to pull to improve its CCC:</strong> <ul> <li>Increase accounts payable</li> <li>Reduce inventory</li> <li>Fast turn on inventory </li> </ul> One of the biggest sources of cash drain for an ecommerce business is carrying inventory. The key is to sell your inventory before you need to pay your vendors in order to get to negative CCC. Gymshark is able to do this by understanding what its customers want to buy. The company has leveraged its strong social media following to communicate with its market so it's producing products customers want and making it easily available to them. This has enabled Gymshark to continually offer products that sellout within hours of launching. Most small to mid-sized ecommerce businesses have 30 days or less to pay their vendors. Gymshark’s days payable is 163. Another aspect of reducing inventory is to reduce the number of SKUs you hold. Again, by knowing their market they were able to buy the right products at the right time - in the right volumes. For ecommerce companies vendor debt is better than traditional debt because there is no interest, no collateralized assets, much easier to negotiate and flexible as the company grows. This is not easy to achieve, but by working with this formula Gymshark and companies like it are able to become fierce competitors - even for bigger, well established brands. Most leading companies have influence over either their customers or their suppliers. Tesla has customer influence through massive pre-orders. Supreme does too with its drops selling out almost before they hit the selling floor. Walmart and other big brands have supplier influence. Gymshark has both. Gymshark has established itself as a linchpin in its supply chain. It has influence over its suppliers and its customers.