Sunday, May 31, 2009

Doing something amazing

As I read through other blogs I see great articles from time to time. Over at the Samba Blog they had a great article on "Do Something Amazing".

Again this hits to the heart of what I have always said, but maybe not in the way they were thinking. The crux being, doing something amazing for 2 - 4 hours instead of working on everything else for 8, 9 or 10 hours. Again, starting a business does not need to be an all consuming endevour where you quit your job and risk the house on an idea.

If you can dedicate 2-4 hours a week even, and accomplish alot, you can ease into being the entrepeneur with less risk. It is amazing what you will get done in those 4 hours because it is something you have passion for. (Pearson Education)

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Thursday, May 28, 2009

The Founders of Method Brand - As seen at Target

Great video of the the founders of Method brand cleaning supplies. I have seen these at Target for several years now. Sorry about the horrible sound quality. I could not find a better copy.

VerticalResponse, Inc.


Wednesday, May 27, 2009

Teaching an old dog new tricks

Do you ever think you are to old to start a business? To old to change? That you don't have the energy? Don't believe it. My mother surprised me today. My father, who passed away last year was the consumate banker, handled all the investments, paying the bills, picking the tax advisor and anything financial. My mother is now 61 and has never had to really do any of it till now. What surprised me today, and pleasantly surprised no less, is the question she asked.

"When we went to the tax guy, how come he didn't tell me to contribute to my IRA?" I was speachless. So I probed and asked if she had been talking to other people about her finances (a no no in our family)? No. Did she see it on TV? Not that she could remember. So someone who never dealt with finances in 40 years of marriage, learned to start asking the right question. She also pays her bills online, learned how to trasnfer stocks and question the bills if they don't look right.

If a woman who barely got through highschool can do all this, how can we ever question our own abilities? I am inspired and when i doubt myself I think about the question, why didn't he have me deposit funds into my IRA?

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Tuesday, May 26, 2009


A quick video about fear and how it can affect us when we are starting our business. Many authors discuss fear, and how to over come it. Like in this vid, the author tells us, you are projecting a percieved outcome, not an actual outcome. By doing this you are keeping yourself from working on the here and know. Enjoy the vid.


Monday, May 25, 2009

Trade Shows

How do you get your idea out there? One idea is going to a trade show. Just about every industry has a trade show that you can go to. The costs can be high or low depending on the type of tradeshow and who will be attending. One tradeshow that goes on ever year is not even billed as a tradeshow. eBay Live! is for eBay buyers, sellers and those selling to those individuals. I found a great vid from The Big Idea talking about trade shows. Take a look.


Thursday, May 21, 2009

Who are the largest credit card issuers

Would you believe that the top 10 credit card issuers control over 80% of the credit card market in the United States? In fact the top 5 control almost 70% of the market in the USA. According to which got its information from Nilsons (an industry rag)the breakout is like this:

JPM 21.22%
BOFA 19.25%
CITI 12.35%
AMEX 10.19%
CAP1 6.95%
DISC 5.75%
WELLS 4.21%
HSBC 3.47%
USBANK 2.14%
USAA 2.02%

You would think this would be a perfect time for another bank to step up and start to squeeze market share, especially the financially strong ones that didn't accept TARP money.


Advice from successful entrepeneurs

I love finding talks from people that have started companies to explain how they started out. I managed to find this pesentation at a site called Venture Hacks. Quite interested. Take a look.

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Wednesday, May 20, 2009

Why did you start a business?

I like hearing why entrepeneurs start their business. I notice a trend, and it is almost never, I did it for the money. I will post vids as I see them and feel they add value. I hope you enjoy.


Derivatives - A bad word

As I have watched the the financial markets melt down, I started to muse on what is now considered a bad word, Derivatives. As a person who actually worked in that market for a good 7 years, I understand the products that have been blowing up better then most. CDO's are bad, CDS are bad, Mortgage Backed Securities are bad. What is unfortunate about this, is these products in themself are not bad, but were used fraudulently over the last 4 years.

Fraud is the key word. When ever financial products or ideas get abused and used fraudulently, they blow up and everyone says how bad these products are. In reality, many of these products and structures provide a legitimate business purpose and have real value to consumers.

A perfect example is Enron and the use of off-balance sheet entities. The use of off-balance sheet entities and products is not what blew up Enron, it was the fraudulent use of those products. Accounting rules in themselves have a legitimate business purpose, to provide transparancy to the viability of a business. Again, when a fraudulent set of books is kept, you blame the fraud not the accounting rules.

Derivatives are a perfect example of a fraudulent use of product. Derivates themselves are not bad. They serve a legitimate business purpose. The simplest is to transfer risk. In recent years, it has also allowed companies and individuals to participate in a market or provide lower cost of funds.

You know those stock options you received at your company? Those are derivatives. They allow you to participate in the success of your company. When can options go bad? Where does fraud happen? How about the back dating of options by executives. To me thats fraud. Do you blame the product or do you blame the fraud?

Did you know mortgage backed securities have been around for 30 years? Yep, the first MBS was created in 1979. Sub-prime MBS have been around since the mid 90's. They serve a legitimate purpose, to provide funds for lenders to make more loans. The big dirty word of CDO, guess when the first CDO was created? 1990. Yep, it was a way of securitizing the junk bonds held by the defunt Drexel Burnham Lambert.

So what happened in 2007 and 2008? Can you guess? Fraud. Yep massive fraud. Who committed the fraud? Everyone. Yes everyone. The guy making $30,000 a year getting a $400,000 loan he couldn't afford. The guy who lied on his application about how much he made. The mortgage officer that pushed sub-prime product to the prime customer. The mortgage broker that changed numbers on the application. The investment bank that new the loans were fraud yet sold them anyway? The rating agency that new they were defaulting at new levels yet still rated it high. The administration that wouldn't let the regulators do their jobs or the congress that wouldn't give them funding?

See what happens when massive fraud happens? In this case it can take down an entire country if you are not careful. When I worked on a mortgage backed security desk in the late 90's, the customers who bought this product were very sophisticated. When someone not sophisticated bought it is when you got into trouble.

The investors who bought CDO's in the 90's were l arge insurance companies that drilled the investment advisor running the CDO before they would consider buying the piece of paper. A lot of times they never did.

The salesman who persuaded the municipality to buy a fraudulent piece of paper, guess what he was committing? Can you guess?


Tuesday, May 19, 2009

My personal finances

Back in the late 90's I was falling into the trap. You know the trap. The need to have everything right now. The best clothes and the fancy restaurants. Part of this was compensating for a deep seated unhappiness of where I was in life. Trying to be someone I was not because I thought that was what defined success.

In 2000, I graduated from Grad School with an MBA in Finance and Financial Derivatives (<-- I know its a bad word). I was lucky in that, my company paid for most of my MBA so I didn't have any student loans but in my desire to "live the life" I had racked up what was for me, a lot of credit card debt, close to $7,000. Add on to this, my student loans in the range of $12,000 and I was heading into the debt trapt.

I just had gotten a raise and I was now making $40,000 a year. Yes, accountants coming out of school were making more then me just on base salary. Add on top of this I was miserable. I worked for one of the biggest jerks I have ever worked for (hint: never work for someone that went through the salomon brothers training program), I was over weight to the point I had what I describe as a Charlie Brown face (round), and my friends were starting to hate being around me.

The only consolation, was when bonus time came, and after taking the time to detail why I deserved a big bonus, I was told I would receive a bonus of $22,500. Holy cow I was rich! Think of all that I could buy!!! Luckily I had a father that talked some sense into me and to this day I think of fondly (sadly he passed away last year) how his advice has stayed with me.

"Chris, I will make you a deal, since your sister only had $6,000 in student loans, I will cover the the difference between what you owe past $6,000." I had been paying for 5 years so I had a good amount paid off. So I took my bonus, paid down my student loans, paid down my fathers student loans and paid off my credit card. I was now debt free. God it was a great feeling! My bonus was gone, but god it was a great feeling!

In fear of running up credit card debt again, I did what many consider to not be a great idea but I am glad I did. I got an American Express charge card. Unlike a credit card, you are required to pay your bill off every month. I still have it to this day, and I finally got a normal Visa card since many places still don't take Amex and that has all of $400 dollor balance on it.

Come 2001, being miserable still at my job was noticed by my ever pleasant managers and they managed to cut my bonus to $17,000. Still quite good in this day and age but it just made me even more bitter. Finally a month after I received my bonus I cracked and quit the job. It was the best thing I ever did. A giant weight lifted off my back. If it wasn't for paying off all my debt, I never would have been able to do it.

To this day I have grown as a person. I have lived in the DC Metro area, Southern California, Silicon Valley and currently in the midwest as I continue to clean things up in my fathers estate for my mother. I still have no debt, I own a 2005 car with 45k miles on it and no loan. I am ready to buy a house and take debt on for the first time.

On top of that, I am considered a leader in my field, which is not the same field I quit from. I make more base salary (6 figures) then I did in my other endevours. I am happy, and am myself which endears me to my managers even when I mess up. You don't have to be an @sshole to be successful, you just need to be yourself.

It is fear of losing money and going into debt that has held me back in starting this business. I know it is irrational, but when one becomes risk adverse, you can become overly risk adverse. Usually after a while I just spend the money and after its done I say, well jeez that wasn't to hard.

When I look back at this I would not be able to write this if I hadn't made the fateful decision (egged on by my father) to pay off my debts and live debt free. Don't get me wrong, while I am frugal, I am not cheap and live quite nice. I never skimp on food, I never want for a new computer or wear threadbare clothes. In fact, I probably spend more on clothes now then I ever did, but instead of looking at name brands, I look at fit, style and quality.

Someone once told me you should have $10,000 at all times just in case that great opportunity comes along. I believe this whole heartedly. Leverage is great for some but not for me. I encourage you to get your financial house in order to give you those opportunities.

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Monday, May 18, 2009

Premium versus Luxury

Seth Godin has a great article on Luxury versus Premium. I personally want my products to be Premium products. Luxury products can be to much work. Not only do you have to persuade people your products offer value without any compelling difference between yours and another product (besides price), but protecting that luxury moniker is quite time consuming. eBay continually gets sued by luxury good manufacturers trying to protect their distribution channel and prices. Trademark and copywrite infringement is a huge deal. A premium product sells itself.

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Can you offer a rebate?

Do you know what percentage of people send their rebates in? I have seen numbers of at most, 40% and as low as 2%. Why do you think companies love rebates? It encourages people to buy based on the rebate, but very few actually send them in.

Admit it, you forgot to send the rebate in on your cell phone didn't you? I know I did. That little small print reminds you that you only have 30 days to send it in. Ooops.

Can you offer a rebate on your product to get them to buy? I have not seen the numbers yet but I imagine the smaller the rebate, the smaller the response rate.

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Friday, May 15, 2009

Art of the cross sell

I was looking at a website for a product the other day, and noticed they had a large sign reminding you to ask for your 10 dollars back. As I looked further, I saw it was a coupon service, free for 30 days. I thought, how ingenious.

Most people tend to forget, that companies sometimes make more money cross selling other items then they do selling their products themselfs. The best example is Best Buy and Circuit City (I know CC doesn't really exist anymore).

A business week article stated in 2004, Best Buy can attribute almost half their operating profit to warranty, which has 40-60 percent margins versus the 6-10% gross margins on the sale of a tv or computer. My uncle just spent 160 bucks on two HDMI cables that probably cost the manufacturer no more then 10 bucks to to make, and that I imagine were bought by BestBuy for 40 or 50 bucks.

At those margins, Best Buy can sell the TV at cost. So the question is, can you cross sell something either through affiliate programs with your products? I am trying to figure out what I can cross sell with my product I am working on right now. Anyone have experience with this?

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Thursday, May 14, 2009

Sexy versus Profitable

So I have worked in Silicon Valley, Washington DC area and southern California for a variety of companies. Most recently in Silicon Valley, which as well know is the hotbed of the technology sector. It is also the hotbed of sexy and many times money losing technology ideas. Does anyone seriously believe facebook has actually been in the black yet?

In our quest to build the next better mouse trap, I think many times we overlook the profitable for the sexy. Unfortunately, sexy doesn't pay my bills, profitable does. Sexy doesn't pay the dinner bill when I take the sexy girl out (yes that was a play on words and a terrible one at that), profitable does.

Let's compare two products.

The first product is a technology service. It has several million users. It has VC backing, a board of directors, and multiple employees. Their product is the hot product and everyone is jumping on the bandwagon. It is the definition of sexy in the technology world.

The second product is a simple household product . It has a great trademark and everyone has seen their commercial.

Many people would say the first product is what they want. It is sexy, they are in the news and they can brag to everyone how awesome their product is. Me, I want the second product. What are the two products?

Twitter has yet to make a profit, is not sure how to monitize its product, has to report to a Board of VC's and continually worry about having enough server capacity to keep up with its service.

The second one, costs (at my estimate) no more then a dollar to produce, is run by a single guy, has great brand recognition and sells for 19.95 plus 7.95 shipping and handling. I imagine, even worst case scenario he is netting a profit of 5 bucks per sale, and has admitedly sold over a million units. He would not continue to be on the air if it wasnt profitable. I would posit he is making more then 5 bucks per sale. I would imagine he is making 5 bucks a unit just on shipping and handling.

What business would you want to own?

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Vetting your idea

Do you have someone you can show your idea to? Someone who can look at your product and tell you if they would buy it? One thing you need to do to get your product to market is take constructive criticism for your product. Take a look at this episode of The Big Idea. These experts gave her some constructive criticm that we hope will allow her to sell more product.


Wednesday, May 13, 2009

Fear and Motivation

I had the opportunity to read a great posting by Mark Cuban on his blog. I think it is a must read for anyone trying to start a business, whether side or full time. Like most people, I hav ea lot of fear. Fear of wasting my money, fear of failure, fear of someone stealing my idea. Most of them are irrational. It doesn't stop us from having that fear though.

It is quite motivating when you hear billionaires talk about their own trials and tribulations. If you read about his life after college, you never would think, this man will be a success. But he was. A lot of it came from hard work and bootstrapping his business from nothing to something.

I highly recommend you read it. The link is below:


S/H or free shipping?

I am struggling with the idea of providing shipping and handling for free or lowering the price and charging for shipping and handling. Both have appealing aspects.

Free shipping and handling provides a value sell when people know that many times a company makes more off shipping and handling then they do the product themselfs. This is like the warranty the electronics store sells you that has better margins then the product itself.

Lowering the price makes it more palatable to the buyer. Also, with a S/H handling charge, you can at least cover your back end costs. I know the seen as tv products charge quite high shipping and handling.

What are your thoughts? What is the best value proposition?


Tuesday, May 12, 2009

A real product

So I read a ton of sites and always search out more for entrepeneurs sharing their experiences starting a business. I think one of the more annoying things I see is what I consider, a real business versus a fake business. I think you know what I mean when you see people talking about, what feels like to me many times, a get quick rich scheme.

Don't get me wrong, I am working on an ebook as we speak, something that would add a lot of value to companies on the insurance side, but I am also working on a physical product. Something that needs to be created and built, where you have to think about its characteristics, how much it will cost and how much it will sell for.

You also have to figure out logistics and distribution. I would love to make millions from affiliate programs, but everyone does the affiliate thing. Give me an innovative product that actually fills the niche. Share your experience working with contract manufacturers, understanding tooling costs and designing your first site.

The Four Hour Work Week by Tim Ferriss does a pretty good job of this, especially in regard to physical products as well as "Virtual Products", but all the entries in his forums are about virtual products, ebooks and other things that in reality, involve less risk.

Does anyone have good sites for people talking about Products they have made? Do you run a site? If so I will put it in my useful links.

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Friday, May 8, 2009

Fortune 5,000,000

I had the opportunity to watch a video of a speaker at "The Startup School". His name was David Heinemeier Hansson. I had never heard of him either, but he is a successful entrepeneur who has created multipe successful (read profitable) tech products. In this presentation he was talking about the concept of the fortune 5,000,000. In a subscription model, he was talking about getting all of 40 customers paying 40 dollars a month for 12 months and you have a million dollar business.

40 customers! Let that sink in. Think of the number of 1, 2, and 3 person shops out there that are not going to be spending millions of dollars on products. Think of the niche's out there you could sell to. This follows on my comments about not having to go all in but starting a business slowly. How about this, what idea can you think of that could help a small business starting up?


Thursday, May 7, 2009

All or nothing, or somewhere in the middle...

Have you noticed that we in American tend to go to the extremes? We are red states or blue states, we wanted the biggest SUV or the smallest fuel efficient cars, and we either work for the man, or quit our jobs and go all in starting a company. But wait, do we always need to?

What about the middle ground? We are a purple country with most people in the middle. We want a fuel efficient car that still does well on the freeway, and we love the idea of owning our own business but enjoy the stability and benefits of a large company or government job.

If you look at most bloggers, they didn't quit their jobs to start blogging full time, they did it nights and weekends, and became successful enough to quit their day jobs. We need to move away from this idea of all or nothing and look somewhere in the middle.

Yes, I love the idea of starting a business but you know what? I am not ready to risk it all at the moment. If I can build enough momentum to do mini-retirements I will be all over it, but until that time comes, its nice to have a job to fund my ideas.

Don't let the all or nothing approach stop you from starting your small business. You do not have to quit your job. You do not have to sell mortgage your house, and max your credit cards on the hope that some idea makes it big. If it is a small idea, start small. Use fullfillment companies, use call centers, sell online or start your first blog. Start out small.

Just do it as Nike we would say. Get out there and try. Make mistakes. Learn from it and make yourself a better person. If your idea gains traction, they enjoy the feeling of walking into work and telling them to take this job and shove it. Don't hold back!


Wednesday, May 6, 2009

Life Insurance - an off topic post

So a lot of blogs talk about life insurance. There are a lot of arguments of whether you should purchase term, whole, universal or other types of insurance. I am not going to detail what you should look at to determine whether you are going to buy insurance or what type. There are several personal finance websites out there that can answer those questions. What I am going to try and explain, some of the other things to consider, that I feel never get detailed in these various posts. This will also not cover variable annuities as I don't know a lot about them. Let's start.

One of the things I like about insurance, and life insurance in particular, is that it is regulated at the state level. When I start hearing insurance companies pushing for federal regulation to preempt state regulation it starts to scare me. But what about AIG you ask? AIG's state regulated insurance subsidiaries were all financially strong. It was their Federally Regulated subsidiary, AIG Financial Products that blew up the company.

The states do regular inspections and audits of the books and records of their regulated entities. There are limits and regulations on reserves that need to be kept, and what the entities can invest in. A good example is National Union, the property/casualty subsidiary of AIG, was invested a good chunk in municipal bonds. Not real dangerous. I have not looked at their exposure on the life insurance side as I have never bought life insurance (single with no dependents).

Most states have a reserve fund that is designed to cover (at least partially) in the event of an insolvency. This has happened in the past and it is another reason why state regulators are so tough on insurance companies, politically it is never pretty explaining to your taxpayers and voters why your reserve fund is now zero.

Most states have limits on how much surplus can be dividended back to the parent. To explain better, surplus, are essentially accumulated profits in their insurance subsidiary. Pennsylvania for example, will only allow the sub to dividend at most 10% of their surpluses a year back to the parent. The sub wants to retain those surpluses as it not only gives a cushion, but also allows them to grow and sell more insurance.

Forget Moody's, S&P and Fitch. These are bond ratings and are only indications as to the efficy of the companies ability to repay their debt. Insurance companies are rated by AM Best. While still a rating agency, AM Best determines the CLAIMS PAYING ability of the insurance subsidiary. Again an example, while AIG is essentially bankrupt, their insurance subsidiaries have A- ratings in their claims paying ability. Most other ratings are at the parent level, AM Best at the subsidiary level.

An am Best rating is a letter and roman numeral that rates the claims paying ability and accumulated surplus. If you stay with in the A range, (A++, A+, A, A-), these are considered excellent. B++ and B+ are still considered good but anything below that AM Best considers, Vulnerable, i.e. stay away. As an example, most companies restrict them selfs to companies of at least A- or higher.

The Roman numeral rates the accumulated surplus held by the company. Again, surplus is the accumulated profits they hold at that entity. While it is different for property casualty companies, most large companies require a size rating of VII to do business with. This means 50 to 100 million in adjusted policy holder surplus.

If you want further information, you can look at AM Best's website which gives a thorough explanation of their rating process. It can be found here.

Mutual versus Stockholder
Most insurance companies used to be Mutual, but unfortunately that has changed over the years as greedy CEO's saw the money their banking and investment companies colleagues were making over the years. A mutual insurance company is one in which its policy holders are the owners of the company. Yes, you have an insurance policy, then you are an owner and in fact are eligible for dividends if the company does well.

A stock insurance company is, as you guessed, owned by stock holders. This means the stock holders receive the dividends, not you. This also means they participate in stock appreciation, allows CEO's to receive options and incents different behaviours. Again, they are restricted in what they can do by State regulators, but this brings up the whole agency/principal/customer conundrum again.

As you can see, I am a little biased against stock insurance companies. Go figure in my professional life its what I mostly use but again, that is on the P/C side, not so much on the life insurance side. There are several mutual companies still existing. While I do not necessarily recommend any of them, I encourage you to take a look.

Return on Investment
One nice thing about Whole and Universal life is for conservative investors, you can get a nice consistent return on your investment. My brother in law has a whole life policy that he essentially makes a nice 5% to 7% a year including the last two years when most everyone else has been down in equities. Not a bad return when you think about it.

Insurance companies have very sophisticated investment departments that in reality are only surpassed by hedge fund managers. They also have more investment options then many mutual funds. For the longest time, large office buildings were for the most part financed by insurance companies and those insurance companies still invest heavily in real estate. As you can imagine, when you have a 30 - 40 year time horizon like in life insurance, it provides more options.

Hopefully this gives you some things to think about. As I remember more things maybe I will come back and edit this post. Just as a full disclosure, I am not an insurance salesperson. I know insurance because I purchase it for large companies (Risk Manager) as well as selling to insurance companies in former lifes. Take everything I say with a grain of salt but I hope this gives you some thinking points to understand. Good Luck!


Tuesday, May 5, 2009

My Idea Document

Do you ever have ideas for businesses, only to see them on TV later and think, I thought about that years ago! I now have a document that I keep to write/type my business ideas. Seriously, I look back at them and think, this is the dumbest idea I ever had, but some I look at and think, wow that still is a good idea.

Too often we have a flash of brilliance that we later forget. Many inventors keep a notebook by their bed so that they can write down ideas when they wake up in the middle of the night. What I have discovered, if I have an idea now, I can't get to sleep unless I log it in my business invention journal.

Sometimes you look back and realize the idea is un-attainable. One example I had, at Christmas time I made a gourmet gift basket for my sister and mother. It included high quality olive and walnut oils, vinegars made from the orleans process, vanilla sugar and others. I thought, maybe I could sell some gift baskets, until I did a google search. I am just not willing to risk that much by competing with a company that is at the top of every single google search at this moment.

Other ideas that I think can work? Well, keep reading as once I get this all set up, I will use the profits (hopefully) to fund other ideas.


Monday, May 4, 2009

Still Here...

So I know it has been a while since I posted and I wanted to apologize to those who check out the site from time to time. Life intervened and I was not able to work on the business idea. I finally got my drawings back from my friend, and it looks darn good. A lot better then my pencil and pen drawings on blank paper. She did it in illustrator which provided a PDF I can provide to potential manufacturers.

LLC... God am I confused. So much conflicting data right now and trying to figure out where to domicile the entity is driving me nuts. I talked to my sister and brother and law and I will include them as 2% owners so it is not a single entity LLC. This should provide greater liability protection. Also, since they would be the beneficiary of my shares in the event of my death, it makes sense.

Now, where do I domicile it. I originally looked at Nevada for a variety of reasons. I then decided Illinois since that is where I am living at the moment. But there is possibility of moving back to California, this could screw things up of course. I may just break down and to the Nevada LLC, since it is cheaper, and they do not release the name of LLC members, go figure a state started by the Mob...

Either way I am hoping to find out this week if this company will be interviewing me in California, which will further determine how I structure. In all reality I just need to stop fooling around.

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