Startup Therapy Podcast

Episode #201

Ryan Rutan: Welcome back to the episode of the Startup therapy podcast. This is Ryan Rotan joined as always by my friend, the founder and CEO of startups dot com. Will Schroeder, will we talk to startups who are scaling all kinds of startups? Right? We're constantly talking to founders about what that looks like, how it works, what getting bigger involves and very frequently, one of the biggest challenges that they're facing is that line item on the P N L called staffing, right? And the cost, the necessity of it and how much that swells and we're typically talking about full time salaries, full time employees. But if we really break down what a start means at any given point, like how necessary is a full time role for what is still a very part time job in most

Wil Schroter: cases? Yeah, I don't know why this hasn't been a much bigger topic, right? Like you were saying, like we're talking about our biggest line item and probably 90% of startups is staffing and yet in many ways, it's been kind of the most underdressed cost structure in everything that we do, which is kind of interesting to me because the startups have been in the vanguard of innovating like the workplace, right? So back in the day, like in the nine nineties when like, you know, our typical kind of startups were coming out, we had all this office space innovation. I remember how mind blown people were when Yahoo put a slide into their office space, like, you know, my God, the people like gold never, you know, never wrap their heads around it. And so picturing

Ryan Rutan: somebody on Goldman on a slide, it just doesn't work.

Wil Schroter: Yeah. No, it is amazing. Um But, but think about it like we've been on the vanguard among startups of kind of innovating within the workplace and now it's, you know, take it to the next level with remote work forced upon us, but certainly we were there first. So why are we having a discussion to say, why is my opic so big? You know, why is my staffing line so big? Like why am I paying these huge premiums if I'm no longer getting the full time effect of people? Everyone's cool with work life balance, which I you and I have been huge proponents of, right? But now isn't the report where should cost us less? People are working less hours, should it cost us less, cost

Ryan Rutan: us less or buy us more? Right? There's a lot of ways to look at that, right? So I, I think we can slice that one a couple of different ways but, yeah, it's interesting. Right. So, you know, we've had this, you know, as you said, this remote piece has been forced on us, we've seen a lot of other innovation in the space and yet we haven't seen a real dialogue around this. Yes, there are more people doing fractional work, but it's still a bit of a fringe thing. Right. It's still not the norm. There are people making it work and there are people who are really successful at it, but it's still not, not the norm at this point, which does still seem quite bizarre to me. And it just feels like another one of those things. It's like now that we haven't had offices for a couple of years, it's like, God, do you remember life in the office? It's like trying to remember having, not having a cell phone. It's like, wait, there was a point where I had to walk to a telephone and hope that someone else was standing next to one when I called them. Like, can you imagine that shit now? Never worked well?

Wil Schroter: Yeah. Yeah. Let's go a little history lesson. Kind of how we got to this concept of hourly, full time in the way that we've historically known it and what an anachronism it truly is. So back in the way, back in the day we had manufacturing and that's really where all this came from. You needed humans to create product. They could create a certain amount of products per hour. And so you paid them hourly and that was literally your cost of goods sold, humans would make things that you would ship and manufacture and it made sense. And so we took that model that, you know, humans create hourly work of production or hour units. And it persisted in banking, it persisted in accounting, it persisted in legal, it persisted in all of professional services, right? The agency world, everything was units of human time. And the idea was once we moved people off the manufacturing lines and put them in offices, we still had the manufacturing mentality where I need a person in a seat for a certain amount of hours to produce units of value that I'm going to pay for hourly. And by way that a salary, you know, et cetera, but then we took the machine that was offices off the table and all of a sudden we kind of didn't need all of your time in the same block because when I said, hey, you have to get in your car at eight AM drive to the office and be basically locked up if you will, right? For nine hours, you physically couldn't do anything else. You were actually here and unable to do things. Now, the workplace has changed a bit but still kind of the same idea. Now all of a sudden, we're like, dude, you don't need to come here at all. We only need you for X amount of time or X amount of, of output. Why are we paying for all of it as founders, aren't we thinking? Damn dude, I could cut my in half my, you know, in line in half if I'm only paying for the value that I need, I'm shocked that we are thinking like that more consistently.

Ryan Rutan: Yeah. You know, it's interesting, I think in the startup space it's probably easier than anywhere else because as we're incrementally growing, we can be incrementally adding more people more time, but that's not generally how it goes, right? And this is an interesting point. I want to stick on for just a second, which is that these decisions because this tends to be the, the biggest line item. Well, you and I talk to founders pretty much every day of the week who say I need to go raise funds and what is typically the number one reason they're doing that so that they can pay for their team or pay for a team, right? They're talking about adding. And so the very notion that people are being forced into, they're deciding to enter into fundraising simply so they can hire a team that is probably far more cost than they actually need at that given point. Because again, they're thinking, you know, I need, you know, two engineers, I need two marketing people. I need somebody in ops, I need all this stuff. And yet the reality is they probably don't need them all specifically at once. Right. You're gonna throw all that money at once and you're gonna start somebody who on the day they start, there's gonna be a little bit of work to be done. Right. This tends to be the way this goes in a startup. Right. We begin these nascent efforts, they grow over time and they expand. But the idea specifically that people are giving up equity or just running around trying to raise funds instead of just building their business in order to take on these overheads that they probably don't need. Just like it hurts. It's painful when we get into these conversations. Right.

Wil Schroter: I think that, that we're in a position where we genuinely believe that the only way that we're going to be able to grow a real business is, is hire full time people in the kind of traditional sense, again, I think we're really mentally stuck in a very dated model that's running very counter to how we should building startups right now. And frankly how, how people should be living in and providing their trade.

Ryan Rutan: Well, if there aren't lots of us and we're not all together, how will we drive the wooly mammoth off the cliff so we can eat it, right. Some of these things go like they're like biological, right? We're like we need to be together, we're social animals. I need other people in the same place so that I can make sure they're doing work and so that I can feel comfortable doing mine, which there's a

Wil Schroter: certain amount of value. Right. Let's point out there are 100 different scenarios of how you could be building your startup and what your requirements are. So this isn't a one size fits all, let's say, even if it's a one size fits half, it's still freaking important because to your point every day, we're looking at pitch decks every single day when we go to use of funds, it's almost all staff, right? Generally speaking, most startups, not all of them, they're not building manufacturing plants and things like that. So the balance of how we're raising money or trying to bootstrap is hiring people. And so the first thing I think we have to step back as, as an industry being the startup industry and, and ask ourselves is again, what is full time employment? It used to just be the universal understanding of compensation it used to be. And I wanna say it used to be really up until today. It used to be. This person makes $100,000 as the equivalent of a full time in the market. And therefore, if you want them, you have to buy all of them and you have to pay the entire premium. That's it. Now think of how many places that just doesn't apply. When I ran an ad agency, you didn't buy our team full time, you rented what you need when you needed them. And guess what? We launched major brands with like BMW, Best Buy, Eli Lilly, all these major brands bought what they needed when they needed it. And it worked really well. And part of the reason it worked really well for them is because when they didn't need it, they just stopped paying it. Right. It doesn't work

Ryan Rutan: out quite as well for the agency. Right. This is so the irony there is the irony there is the model is that somebody else can access your team fractionally, but you're paying for them full time, right? So there's a challenge there because in times of, of Feast, it's great in times of famine. Right? It's layoffs.

Wil Schroter: Yeah. And so I think that, you know, from, from our stand as startups as we're building our, our staffing line, what I would love to, to hear people say is, here's what I need, I need this output. It could be marketing K P I S or it could be a certain amount of product, it could be whatever. And here's about how long I need it for. That's what I'm looking to pay for. Again, we're caught in this mentality that if we need an attorney or if we need a doctor, we have to hire them full time at that maximum rate and make it so they can only work with us and that's it. And what a massive amount of inefficiency, I think when we talk about in efficiency, let's talk about how many things we're paying for but not getting right. In other words, we think we're paying for all of people's time. We're not one of the examples that I've used is ask someone, well, you have three kids. I was gonna say, ask them with three kids. You have three kids in the middle of spring break. Right? There's a million distractions, dude. I have two kids, right? And as soon as spring break hits, actually their spring break hits in three days, I'm gonna watch my productivity go off a, off a cliff, right? And that's with full time help of watching these beautiful Children. And that's just one example, but like, I don't think we have people's full time anymore. You know what I mean?

Ryan Rutan: No. And honestly, we, we sort of know we never really did. Like, there's plenty of science out there that sort of tells you here's how many productive hours any given human has. There's another cut to this whole thing though, which is that when you do start to employ people full time, what are the chances that that highly specific thing that that person does is something you need 40 hours of every week,

Wil Schroter: right? Just where I was gonna go. So,

Ryan Rutan: like the idea that, you know, we need whatever your superpower is that we somehow have 40 hours of that and that's all you're gonna spend your time doing. That'd be great. It just tends not to be the case. If you're a cardiothoracic surgeon, then you probably do spend most of your time just doing surgery. Right. Cool. For everybody else. What ends up happening is that they, we end up filling employees time with things so that we justify that 40 hours that aren't their superpower. So they're getting admin stuff thrown at them or worse, they're getting stuff thrown at them that they're actually not that good at. But they're the one who's there and they have time and they have cycles. So we end up throwing it at them. Startups are exceptionally prone to this. And so when I get this question, I, and it's all the time, right? Like I, when I'm, I'm doing office hours with founders or, or one on ones group workshops, whatever people are saying, like, hey, we wanna build our marketing team, we want to build our marketing, we need to hire somebody. What, what should our first hire be? I was like, if you don't have a team yet and you're thinking about your first hire, it probably shouldn't be a hire, right? You should probably be thinking what function do I need most right now and what's the least I can contract to get the most value from that. And that is not putting a generalist in a seat and hoping that they really perform well across 40 hours of a work week. That's just not the way it works. And if you break it down that way, logically, you would never think like, yeah, you know what, I'm, I got this, this cardiothoracic surgeon. I also need my lawn mode. I also need my right. You're not gonna do that. You would not do this anywhere else. And yet in startup land especially we hire somebody and then, and, you know, maybe we hire a paid, paid search person and they take on paid search and that's great. And there's about 9 to 12 hours of that to do per week. Well, what the hell do we do with the other 28? They've got to do something. Ok, so peace, we'll find something for them to do. Um, maybe they can write some copy, maybe they can, you know, handle some of our other tech. It just doesn't really make sense. And so I'm a huge proponent of just buying people superpower time until you can just to find that full time hire. And we've done this a number of times where I, the, one of the better examples, we had somebody that we were, we had on contract through an agency for over three years before they became a full time hire with us, right? Because we just continued to grow that function until it was like, well, now it makes sense. Now we actually have a full time job for this individual, right? If you can find yourself in a situation like that, you're far better off to pay just for the superpower instead of just filling people's time.

Wil Schroter: Or how about this? Because I think you're touching on this. How about if I only have, let's say $100,000 to spend on a function? Right? Why am I buying a mediocre, $100,000 person versus buying the best $250,000 person for a fraction of the time that I'm actually gonna use the most because I'm gonna get way more value again. The back of our minds, we're pushing back on the back of our minds were like, no, no, no. I want this person thinking about this business 24 7 in the shower, et cetera. Cool. Except they're not, they're not, that's not really the way people work. It sounds cool. It sounds awesome. It sounds like one's just focus on this one thing. There's nothing else and, and they've got all their chips on this. I just don't think that's the reality of the world anymore. And I think the world's waking up with much faster than the startups or the people who are, are writing those checks or making that payroll are realizing. And I think there's a whole other side to this evolution, this revolution around remote work around freelance, et cetera that's missing. I would love to see more pitch decks with the use of funds. Talk about the efficiency of how they're gonna spend. We've got $500,000 to spend. Here's how we're gonna spend it as efficiently as possible. With the top talent we can get at the times we need it in the way that we need it. Every single deck says the same thing. I'm gonna hire a developer, I'm gonna hire a marketer, I'm gonna whatever. And it's like the same thing, thing and it's like, how is it, every company needs all of that at the same time? That doesn't make any sense.

Ryan Rutan: Well, here, here's another one to throw. So another scenario that routinely plays out because of this inability to afford the full time hire that you don't actually need people take on co-founders. They're like, look, there's some more work that needs to be done, but I can't afford to pay anybody. So let me inextricably tie myself to another human in perpetuity to fill a really, really poorly defined role that they clearly and objectively aren't fit to handle. Right. They can't take on everything that needs to be done, but they'll put in 40 hours and they won't make me pay them anything or, or we'll pay ourselves very little. So that works out well. Right. It, it doesn't, it doesn't, we've talked about this 100 times that we talked about it once,

Wil Schroter: you know, something that's really funny about everything we talk about here is that none of it is new. Everything you're dealing with right now has been done 1000 times before you which means the answer already exists. You may just not know it, but that's ok. That's kind of what we're here to do. We talk about this stuff on the show, but we actually solve these problems all day long at groups dot startups dot com. So if any of this sounds familiar, stop guessing about what to do. Let us just give you the answers to the test and be done with it. It also has this really broken assumption that the folks working also have a full time persistent contribution like you were talking about before. Generally speaking, we all have highs and lows of our contribution. Even as a CEO I have highs and lows. Some places where my time is being very well utilized and most of the time where it's not, if you were to say like, well, where is the time where as a CEO anybody, not just me would be, you know, getting utilized the most at, at their absolute highest level of, of their pay range, right? You you think things like getting big deals done, right? If you do an acquisition, a sale, fundraising, things like that, you would talk about maybe setting a strategy, maybe there's some aspect of strategy that only you could set that, you know, nobody else could do it could be recruiting. That's an important part, you know, if you're doing at some of the highest levels, and again, there's all these things that individually are super high

Ryan Rutan: value. But what do you do with the other 90% of your time?

Wil Schroter: Yeah, I say like, but we're also paying for a lot of my time where I'm not doing things that are high value right now. Whenever I look at that as the, the guy that's providing that time, I'm constantly saying to myself like, how am I using my time? So that like, I'm worth my salary, so to speak. I'm very conscious of that. But, you know, also being responsible for everybody's payroll, that's why wouldn't I be thinking like that, I'm also our CFO but most of the folks on staff aren't thinking like that, right? They're thinking about things totally different. They're like shit, if, if they'll pay me fuck it,

Ryan Rutan: that's, I mean, that's basically it, right? And now, now we're seeing the phenomenon where we're saying that in parallel too, right? Where it's like, well, if they'll pay me fuck it and if they'll also pay me fuck it, if they'll pay me, I mean, right? Like it's that, it's, it's the quiet quitting where you're kind of stringing along multiple jobs where you're not really doing what you're supposed to be doing or you are doing what you're supposed to be doing, but maybe in less time than what is expected. Ergo, you can pack in 234 roles at once and look, I think part of the problem is that, that dialogue just needs to be opened up. If somebody can say, like, look, here's the value you expect from me. I'm giving that to you. That is currently taking me 15 hours of my week. So that's what it's worth to. Both of it's worth me spending 15 hours. You're getting what you want. I'm getting paid what I need and I'm gonna do that for somebody else and somebody else and I'm gonna work 45 hours a week. right? That is just, it's this kind of cloak and dagger maneuvers. Now, unless you're a freelancer or a contractor auspiciously, then it works. But I we just need to open this dialogue up more and say like, look, why don't we do this? Why don't we find ways to make this work? Why don't we have like a clear dialogue around? How could you divide up your week and how could we divide up where your paychecks come from? Because there, there's so many benefits that we've, we've talked about some of the benefits to the startup, which is paying people for the value you actually need, meaning that you, you may reduce your overheads or maybe you just direct that money into a better resource to your example around rather than paying, you know, picking the person who fits the salary requirement that you have, right? Not generally a good way of doing that, but we only have 100 K so we can only get the 100 K person. No, we need a $200,000 resource. So, let's get half their time. That's a huge benefit to the startup. Right. It's also a massive benefit to the people who are on the fractional side because in most cases they garner a slightly higher per hour rate, they have more flexibility. And your eggs from an income standpoint aren't all in one basket, which if you've been working for a startup or hell, even a global tech giant over the last year and a half, you'd certainly appreciate that

Wil Schroter: one. Right. Yeah, of course. And here's the thing, I think that the high performing people, the high performing people can generally pull off two or three jobs kind of thing. Again, you are seeing it right now and frankly, most founders have been doing that since the dawn of time. In other words that they, but they're working for their current company and starting their new company. It's kind of how the things get, tend to get done high performing people. Now, if we take that down a notch down a notch in this case, being the productive folks, right? And I don't want to pick out and say customer service because some of them are incredibly productive. But let's just say that job right where it tends to not be a, a skilled position where you have like a, an attorney or an investment banker level of value, you know, that, that you can drive. Generally speaking, I'm on the phone, I'm answering questions. I'm dealing with customers. It's a pretty commoditized offer. If someone were to come to me and say, hey, we only need you for 20 hours a week. In that case, I might be saying like, dude, that's cool. But there isn't really a market where I can fill the other 20 hours a week very easily. If you want me, if you want to, you know, fill this role, I'm gonna have to kind of pay for all my time, whether I'm using it or not and that I get, but I would still look at that and say, hm, wherever we're not getting the full value, we really got to be asking ourselves why we're paying the full amount.

Ryan Rutan: Well, and that's where you have to question whether that full time hire is the right move. Maybe you pay a little more on a per hour basis, but you go through an agency who solves that problem for you of, we only need 20 hours of your time. And they're saying, well, I need a full time job. Cool. You work for the agency and I'll pay them for the time that I need from you. Again. There's a premium there, there's a premium applied, but it's a net benefit to the employee, the contractor. In this case, it's a net benefit to the startup. You know, based on the fact that there's certainly hopefully you're not paying twice their hourly rate for half the time. Um If you are might as well have hired

Wil Schroter: them full time. As some of our listeners know, we've got a company that we own called virtual dot com. It's a virtual assistant business and bring this up just because we have a lot of experience with this topic. So we got a, a lot of people that come to us, you know, a lot of founders and they say, hey, I need 40 hours a month worth of time, but that's it. And so they, they hire their virtual assistant and not like a huge premium, but more than they would otherwise pay. But here's what's cool about this. And again, this all speaks to the ways people use it intelligently. They say to themselves, if I need to go from say 40 hours to 20 hours, I can just make that adjustment, flip of a switch, correct in a traditional sense. And what we're seeing with all these layoffs is it's binary, either have people or I don't, if I can't use them for the full amount, they don't have a job anymore. Right. That's very, very, very challenging. But what we're seeing is that all of these people that couldn't otherwise afford, say a dedicated assistant now have one. So you got to start to think to yourself if all I'm thinking about is in terms of paying everyone full boat, how many spots on the team am I not staffing for? Because I overstaffed the other ones, there's a massive cost to overbuying. You mentioned the perfect one which is everyone wants to find a co-founder CTO because everyone wants to get their app built for free. Right. And you look at that and you're like, ok, that's cool. That is a moment in time that you need them, but you don't necessarily need that person full time all the time. There's a million software, you know, engineering firms that can do this for a moment in time where you're like, oh, I've got to pay this person 100 and $75,000 a year. Dude, you go to a job shop, you could probably get the whole thing built for less than 100 and $75,000 with no equity and probably more accountability. It's a broken construct that we're trying to build everybody with the same giant super expensive bricks. It's, it's bananas

Ryan Rutan: to me. It is. No, it's silly. And, and I think again, given the changes in the environment over the last couple of years, I mean, this is decades in the making, of course. Right. Just the, the way work has changed the fact that we're easy to be distributed. Now, we all have all the computing power we need on our phones or on our laptops. Right? It didn't used to be that way. You had to have a big desktop rig, you had to go sit in an office, right? Internet was expensive or crappy at home. Like none of those things are true anymore. We have all the base infrastructure we need to work from pretty much anywhere. And that is we're continuing that. I mean, now Elon's gonna have satellites spinning the globe, you know, spitting the internet into basically every corner of the planet. So we have all of this capability and we now have more reasons to want to do this. Right. Again, just the overall efficiency and look like from the employee side, would you rather have that full time role with one company or two or three roles where you've actually got something that you really enjoy doing and a little bit of variety,

Wil Schroter: right? Well, the other side of it is the assumption is that by hiring one person for one job and kind of taking up all their time that I'm also getting maximum amount of value. What I mean by that is not necessarily some of the value that we provide like when we talk to other founders is that we talk to lots and lots and lots of founders. We don't just work on one company with one product with one thing. So we get to compare notes with everybody. Now, this goes back to the agency world, you bring someone on from the agency and presumably they've worked with lots of clients. They've seen lots of different scenarios, they can say things like, hey, I'm managing your P PC spend, guess what? All the prices are going up across the board. You know how I know this because I've got five other clients and we all deal with that. How invaluable is that in the formative stages of your startup to be able to have different kind of perspectives on how things are going. You know, we've had this benefit us numerous times in numerous ways. The other side of it is for the, the actual employee, if you're doing one thing all the time and you do nothing else. How do you level up? It's like an attorney that practices one type of law with one client with, you know, one purview, the moment another client comes on with a slightly different case, they've got no experience to support it. Right. That's a dangerous position for them as well. I think it helps to have, have those multiple inputs.

Ryan Rutan: Oh, for sure. No, I think it's, it's beneficial to both sides. I think that what we lack right now is the higher level infrastructure to really enable and make people feel comfortable with this. Certainly all of the actual infrastructure is there to make it happen. It's the mental frameworks that we're missing that, that allow us to say this is OK. Right. And look, there are a couple of philosophical arguments that, you know, what about things like team cohesion. What about things like, you know, just that osmotic effect of having people in those full time roles where all they're doing is which again, like we know we're not constantly thinking about it, like, as, as an employee, you're not always thinking about your company, your job. But when we steep in a little bit more, what about those intangibles? What about all those other things, those byproducts of full time work that might be a benefit to the company to which I would say, yeah, they might be, you know, those byproducts might be good. You know, those intangibles might, might be something that's worth something. But how about in the meantime, we pay for tangibles. In the meantime, let's pay for tangibles and let's buy what we actually need. And again, like going back to the the budgetary constraints, right? Every startup is in a resource constrained situation, right? And so let me use a really dumb example here. But if you're building a pizza, right? And you've got 10 bucks right now to spend and let's say you got two bucks to spend, right? $10 would, would want to do it. You got two bucks to spend, you can buy the bag of flour or you could buy the eggs or you could buy the package of pepperoni. What good is any of that shit going to do? You in isolation? Right. One of those things does not eat pizza, make and so pay more for a single slice of ready pizza. That's what you need right now. Startup land, you need the full compliment of resources that will get you to that next step. And if you buy somebody's full time, you are likely hampering your ability to do that in so many ways. Or you're dictating a path, which is to say, you know, you're going to go down the fundraising path and now you've really limited your potential outcomes. And we've, we've talked, we've drawn about that for, I don't know, four or five hours across various episodes, but it's a dangerous move.

Wil Schroter: Given that we're so resource constrained. You would think that we'd be thinking to ourselves, man. I cannot hire any full-time people. Like uh I wish

Ryan Rutan: that's what people were

Wil Schroter: thinking. Yeah, I know like that, that 10% I might get of people's shower thoughts or some kind of like team cohesion is cool. I'd love to buy that someday maybe, but I can't afford it now or said differently. Would I'd be paying for that, that premium? I've got 100 other places to put it right now. Right. I got 100 other things that I need to get done. Not to mention I'm at the most expensive period in my startup life of making that decision, which is to say I'm giving up equity to get this money if I'm not wildly wildly focused on how to optimize every single penny of my spend in order to stretch it as far as I can. So I don't have to continue to dilute and take the most expensive money I'll ever take. Why wouldn't that be the most top of mind thing possible?

Ryan Rutan: Also? How many startups are that optimized? Pretty much? None of them?

Wil Schroter: Yeah. Agreed. It, which seems odd given how innovative we are, you know, as an industry, I genuinely believe we're gonna see a massive renaissance over the next five years. In, in. Right. I, I know you're there too, whereby we're gonna see both on the employer and employee side. A kind of decoupling of some of these norms. I think we're gonna start to think of full time work as anachronism, something that used to happen, something that we used to think of in a certain way, but doesn't make sense anymore. And I think we're gonna look at at what's considered either full time value or full time value equivalent. I think we're gonna look at, I want to pay for outcomes and I'm not trying to buy or, or full time lease people's time or lives. All I want is the actual thing I'm trying to get done and I'm willing to pay whatever the maximum value is. I don't care how long it takes. I don't care who's involved. I just want to get it done and I'm willing to pay a super fair, if not, you know, larger price to get that outcome. So, in addition to all the stuff related to founder groups, you've also got full access to everything on startups dot com that includes all of our education tracks which will be funding customer acquisition, even how to manage your monthly finances. They're so much stuff in there. All of our software including BIZ plan for putting together detailed business plans and financials launch rock for attracting early customers and of course, fund for attracting investment capital. When you log into the startups dot com site, you'll find all of these resources available.

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