My Favourite Failure: I should’ve listened to my gut! Lucy Cohen

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0:40And they're used by thousands of companies like Lush, Spendesk, and Mindful Chef, so you know you're in good hands. So if you're leading a small or medium-sized business and want to spend less time and effort on HR admin, then book a demo at personio.com forward slash secret leaders. That's personio.com forward slash secret leaders. There's a link in the show notes. I always describe that moment where you realise that something's gone wrong. It's that feeling like your stomach drops, like you've come off the top of a roller coaster. I remember that feeling in the pit of my stomach and I felt weak and just the anxiety.

1:18And I remember just thinking, oh my God, is this it? Have we made a terminal mistake here? Lucy Cohen is the co-founder of Mazuma, the UK's first subscription tax advisory firm and one of the country's leading online accountants for small and micro businesses. They have over a thousand clients across the UK and have moved into the US market. But in their early days, it all came so close to falling apart. What happened?

1:53Back in 2006, cloud accounting software didn't exist. Lucy was a 23-year-old chartered accountant and she wanted to disrupt the market. She started Mazuma with her co-founder Sophie from her spare bedroom, sharing a laptop because they didn't have any money. But they had a strong vision of what they wanted their company to be. We were very clear that we didn't want to be just another accountancy firm. We wanted to have better processes. We wanted to be far more commercial. We wanted to commoditize accountancy a little bit, make it less stuffy, less male, pale and stale, really. So we had this kind of very clear vision of what we wanted Mizooma to be.

2:33And we'd started off as this kind of very scrappy little startup and very quickly grew. So despite the fact that the first business advisors we saw told us it was a horrible idea, we plowed on and it got traction. people started liking the idea locally, then a little bit further afield. And before we knew it, we got our first member of staff, got some offices. And yeah, it was a really exciting time. We'd gone from really struggling financially. We were just very hand to mouth to suddenly, it wasn't every month, how are we going to make payroll? It was okay. Yeah, this is comfortable. We can start planning a bit.

3:09We can start investing back into the company a little bit. Despite the confidence they got from their early success, they still felt they needed outside help to really make the business grow properly. We, I think, grew up in business at the start of that Dragon's Den era. So the start of that, you know, founders don't know how to do anything and you should get the right people in for the job. So we started thinking, oh, maybe we don't really know if we want to accelerate and grow. Maybe we don't really know how to do sales properly. We're not salespeople. Maybe we need to get somebody in who can do that.

3:38And we met this individual at a networking event. And usually what happens is when we explained what we did, especially if I can say it this way to men of an older generation, we'd have to really explain what we're doing. We'd have to really fight and justify our position. You get a lot of this can't be a great idea because no one else has done it before. All that stuff. And we met this guy and he just got it. He just got it. And he loved the idea. And he was like, I love it. It's great. It's brilliant. Yeah, I see it. This could be huge. I think this is great. and we were just like wow okay someone gets it we're not going mad and it just felt really good for somebody outside of Mizooma outside of what we were doing to parrot back to us or hold up a mirror to ourselves and go you're doing a good job I think this is a really good idea and in fact I've got some ideas that could help you.

4:29This individual was well known in their network they had loads of contacts understood how to hire a sales team so they could create pipelines and supercharge the sales of the business. It just seemed serendipitous to Lucy that they'd met. And in the beginning, it all worked well. He was very present, very keen, wasn't talking about how much money he was going to charge us or what he wanted. It was all about the business, the growth, understanding where we were economically as that business. We didn't have hundreds of thousands of pounds to spend, understanding that we were still very much bootstrapping what he could bring to the table, talking about B shares only crystallised on a liquidation event, all this stuff.

5:08So it all sounded very grown up and sounded very sensible. But then Lucy started to notice a worrying pattern of behaviour. Just missed the meeting, just didn't show up. And then we're like, well, that's really weird. And out of character. That's really strange what happened. There was an excuse someone had been ill or something had happened. And then that sort of happened again. I was like, oh, hang on a second. I don't like this. This has changed very suddenly. Suddenly somebody who was very keen is becoming unreliable. I didn't like that, but there was always a really plausible excuse. Nowadays, if I ever get that from people, I'm like, red flag, what is going on?

5:44Nobody ever has that much drama in their life. Yeah, I've learnt big lessons from that, but I think it was that sort of behaviour that initially, that little feeling in my gut was like, oh, hang on a second, something's off here. But Lucy didn't listen to her gut. After all, this individual was giving them good advice. They were helping them centralise their operations and suggested the team find an office. This would make them more efficient and give them more control of their cost and their reputation base. It all made sense. So they went for it. They found a 6 ,000 square foot office in an industrial estate.

6:19They got match funding, part borrowing, part grant funding to help them afford this big space. We had a boardroom, we had all these like Levy U desks, we had this server room, we had all this stuff ready for our growth we were so excited to move in and there was one thing that needed to be signed to get money released it was a it was a a lease thing and this guy put us in touch with a chap in the bank and they were helping us work together on this and structuring it all and that was great and on the morning of moving in we needed some money to be released in order to you do the deposit or the security deposit or something to get us into this building and that money hadn't been released.

6:58And I was ringing this guy going, we need to do this now because we're at the building. We're supposed to be doing the keys and you're not here. We need to get this money. And he just disappeared. Lucy couldn't get hold of him. Waiting outside the building, having moved all their stuff, they had no other option than having to go elsewhere for the money. And then once we were in the building, everything set up and we were like, great, now we can start on our sales plan. We're going to, we built the warehouse. Let's get the stock. Let's sell it, essentially. And we were contacting this guy going, let's come in.

7:28Let's do this planning session we had in the diary. Let's start recruiting the sales team. And I just couldn't get hold of him. He just disappeared. And at first, I was like, okay, maybe something's happened. And then that little feeling in my gut became more and more prevalent, which was, hang on, he didn't show up to other things. And there was always a reason. But actually, these reasons are starting to sound implausible now. And he just disappeared. And we had this huge building and we had staff and we had not enough clients to pay our rent. And we had a limited runway of months of cash until we were out of cash.

8:06I realized then in that moment that this guy was not going to be the person. And we'd done everything we should have done. We did due diligence. We did contracts. We did background checks. It was very well known in our network of people. And he still just disappeared and left us in this really critical position. The business came close to collapse. Had we not taken such severe course correcting action, that would have been it. In that moment, we would have gone into our office and that would have been it. We'd have gone, we can't do this. On paper, we did the impossible. We did the absolute impossible.

8:50This was 2008, 2009. so asking banks for more money was almost impossible because of the credit crunch they weren't going to give us an overdraft we couldn't get credit cards so it was just pulling every lever we had it was asking our suppliers can we have an extra few days you leeway on these invoices can we be 30 days late on this can we pause this subscription for a bit and then we'll pick it back up again in a few months time we just put our heads down and we didn't focus on anything else We were not distracted by outside opportunities. We were not anything that didn't either save costs or make us money.

9:27We just didn't do it. That was it. It was just real bare bones skeleton. This is survival mode. And it was doing all that whilst having to keep our staff who were working there motivated and engaged. I felt like I was two people. I felt like I'm this like super positive. Yeah, we can do this like really motivational person. and underneath the surface of the water, there's these little legs peddling and there's this stuff going on my head going, oh my God, like how close are we? Like how much further can we do? What's the runway looking like? You might be listening to Lucy's story and thinking, wait a minute, they are an accountancy firm.

10:04Why did they take on such a big commitment when they didn't have clients coming in to support it? They should have known better. But this individual, this advisor, had promised them he could make it work. And like Lucy said, they just had no reason not to trust him. When you start a business, when you start out on your own, you don't have enough clients to cover your bills. No business does really. And you usually, especially in accountancy, most people, the first thing they do when they start a firm is they replace their own income. And this just felt like we'd always seen ourselves as a business, not just a firm.

10:38So we had very large commercial ideas, our branding and everything we did was very quirky and different. And we believed in ourselves. And we believed when this guy said he had this network of, he had this cross sell opportunity with all the companies he worked with, had a very similar client base. And again, it all checked out. It did. It all checked out that there could be introductions made and we'd expect this conversion rate and et cetera, et cetera. So it did all just check out. There was nothing along that route that felt like it couldn't happen. And like I said, we did everything we were meant to do.

11:12Part of being an entrepreneur is taking those calculated risks. And we saw this as a well calculated risk. If I was going to be really pragmatic about the whole thing, I'd say that the lessons that taught us, it was worth it because we still hit our goals. We still did what we wanted to do eventually, just not in that moment. And whatever happened to that individual? Did Lucy ever hear from him again? So we got our heads down and we worked our little butts off for months and got ourselves back into black. So that took a while. And then about a year after that, so say 18 months later after he just disappeared, he reappeared out of nowhere and tried to send me a bill for tens of thousands of pounds for his consultancy work.

12:01And I was like, excuse me. so obviously I you responded with very politely obviously I was like absolutely not never was this discussed never was this agreed categorically not no and sent quite a stern letter back again having a big fancy lawyer wasn't an option so I was back to my textbooks to figure out the best way to write this and then he disappeared again and I thought that's it that's the last we've heard of him and then about a year after that he reappeared again and apologized and said I'm really sorry I had a I had a midlife crisis basically and I'm so sorry and I was like that's really I appreciate you apologizing but that really didn't help us at the time you were supposed to deliver something that you didn't and you put us in jeopardy because of it so I think this is the last time we ever speak.

12:53And that was that. I've got to say, I'm really impressed with how Lucy handled that call. After all that had happened, she was the bigger person and accepted his apology. But it is scary how much damage this person caused their business. And this situation is not uncommon. We've covered many stories of bad partnerships in this series. It's a challenge so many entrepreneurs face. So what would Lucy do if she was faced with the situation again? If I was to do it again today, you still do all the things you're meant to. Contracts are there. You do your due diligence. You speak to people about the person you want to work with.

13:31You spend time together to find out it's a good match. All of that stuff, we did do that. And I'd obviously still do that again today. I think the only thing I'd do differently really is that I trust my gut a bit sooner. So at the point that things start not going the way you think they're going to, and this could apply to anything. This could apply to a member of staff who starts off really strong and their performance declines really quickly. Let's face it, a marriage is a contract and people end those all the time. So it's looking at this and going, yes, you can have all the contracts and legal protections in the world if you don't have the clout to fight them as well, because there's one thing having a contract and there's another thing having enough money to get the lawyers involved to fight these things you want to.

14:12They are two very different beasts. So there has to be a degree of trust between people when you're going into business together. I think I just trust my gut a bit sooner if things aren't quite right. There's a little part of you that knows that things just don't add up. Just I'm much more honed into as a much more experienced business owner. Look, we've been going 17 years now. In that time, I've experienced the full gambit of human behaviours. I've learned that actually my gut is very rarely wrong. And there are subtle things that you pick up on without even knowing that tell you which direction things are going in.

14:47I'd just be saying trust your gut if something in there isn't feeling right or someone tells you oh I'm sorry I couldn't do this because of an excuse and it just doesn't ring right with you just trust that a bit and be super cautious about the next step just don't ignore it because ignoring it is when you continue on a road that might get you into difficulties.

15:10Lucy Cohen on the importance of learning to listen to your gut. Thanks for listening to this episode. I've been your host, Dan Murray-Surter. If you liked this episode, please subscribe or follow us and leave a review. We love reading what you think.