A chocolate-loving entrepreneur on last night’s episode of Shark Tank fought through some intense scrutiny of his business to secure a $600,000 deal with retail-savvy shark Janine Allis.
Arno Backes, founder of Melbourne-based chocolaterie Ganache Chocolate, was fourth to enter the tank last night, seeking an investment from the sharks to help his business expand beyond its two Melbourne stores.
After luring the five investors in with some free chocolate, the discussions quickly got down to brass tacks, with Backes revealing Ganache Chocolate pulled in EBITDA of $330,000 last financial year from a revenue of $2.7 million – figures that impressed the sharks.
The entrepreneur also revealed his goals for Ganache Chocolate to be a $15 million business, and promised the sharks a return on investment within three years. Backes, a master chocolatier, started the business in 2006 after moving to Australia from Germany. Now, he employs 35 people across his two stores.
However, it wasn’t until Boost Juice founder Janine Allis broke Backes’s business costs apart that the real scrutiny began. The entrepreneur listed his profit for his two businesses at 3.54% and 8%, respectively, which Allis noted was “quite small”.
Backes also cited a cost of labour as 36%, to Allis’s despair.
“36% of your sales in staff wages, isn’t good,” said Allis.
“Is it fair to say you love chocolate more than you love business?”
As the details came to light, all of the sharks bar Allis backed out, with Steve Baxter calling the pitch a “distress flare”. However, in the end, Allis agreed to a $600,000 investment for 40% equity – but imposed conditions on the deal.
“[First], that I meet your business partner, and she’s not Godzilla. The second one is that you have to get your cost of goods down to 33%. The third is the wages have to be a maximum of 30%, that shouldn’t be difficult,” Allis said.
Backes agreed to the deal, and the two shook hands before the entrepreneur left the tank.
Speaking to SmartCompany, Backes says the opportunity to pitch on Shark Tank was “once in a lifetime” and adds that he is excited at the prospect of Allis coming on board as an investor and mentor.
“For me, being a master chocolatier, the business part was always somewhere where I needed to improve. The chocolate quality is there, but I know I need to improve on the business side of things,” he says.
The episode was filmed in February, and Backes says he and Allis are still going through due diligence on the deal. In the meantime, he’s been getting some external advice on running the business, putting more focus on wholesaling, and constantly looking to where he can improve the operations of his two stores.
While Backes said he’d never pitched for investment before, the Shark Tank appearance didn’t faze him. If you’re in business for 10 years, “you’re going to have to cop bigger hits than this one”, he says.
“If you find it difficult to speak in front of Steve [Baxter] or answer any of the direct questions from the sharks, you shouldn’t be in business,” Backes says.
“I didn’t find any of the questions they asked intimidating in the least. If you’re going on Shark Tank and you don’t know your numbers, you shouldn’t be going on Shark Tank.”
As for the grilling he received from Allis, Backes says it was “brilliant”, and regrets he didn’t get even more feedback.
“If you don’t get pointed out what could be done better, you’ll never know,” he says.
Backes also revealed in the tank that he had suffered from a bout of bowel cancer around five years ago. While he has a good bill of health now, he says something like that can “take the wind out of your sails” as a business owner.
“When the doctor tells you you have cancer, you don’t really feel like re-signing a $2 million lease for the next few years. It does slow you down a bit,” he says.
Looking to the future, Backes believes the sky’s the limit, and is hoping for the deal to pass due diligence with Allis.
“To have someone like Janine kicking my butt and saying ‘get this done’, I’d love that,” he says.
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