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Can You Hire an Entrepreneur to Work in Your Organization?
Posted on
Sunday 11 October 2009
Or Are You Bringing a Wolf into the Tent?
An acquaintance who runs a large tech services business, asked me if
he can hire one of the hot shot entrepreneur students I trained a few
years ago. His worry? He is bringing a wolf into the tent. If you train
an individual who is predisposed to becoming an entrepreneur, you could
be training a future competitor.
This is a possibility, I agreed, but there is also another way to look at it.
Do you want an employee who has the skill set of an entrepreneur? Do
you want someone who can: take initiative, doesn’t need a lot of
direction, is innovative, can do everything in parallel, will find
launch clients, knows how to build cashflow, understands the value of a
client and customer, will use bootstrap capital, can sell/sell/sell,
knows how to use guerrilla marketing and social marketing to build the
brand and capture market share, is not afraid to try new things, knows
how to build a sustainable business model with a lot of ‘pixie dust’ in
it, can set goals and achieve them, is dynamic and has high energy, can
create a business plan and be ready to change it when the market moves
in sudden and unexpected directions?
If you answer ‘yes’ to the above, then, by all means bring the
entrepreneur into the fold… he or she is now your resident intrapreneur.
But use them wisely. My recommendation—find a specific project or
product management job that you need done, that will take two (or at the
most three) years to implement and then put them on it. If they leave
after that time, at the worst, they will have created a dynamic new
division for you that will produce sustainable profits for a long time.
Then, after that, what do you care if they leave?
My acquaintance liked this approach since it fit in with his overall
philosophy—that after you get past the startup phase when the founder or
founders are the only people working on the enterprise, your most
important decision is whom you hire. I agree—always try to hire up.
Prof Bruce
Ps. We also discussed his priorities—he puts employees first,
customers second and suppliers third. His rationale—it’s not the assets
that you own that produce revenues and profits—it’s your employees. He
puts a lot of emphasis on training and retaining his employees. I told
him that we used to call our receptionist our CIO—Chief Information
Officer. She or he might be the first contact that a customer or
supplier ever has with your firm so that person should not be the bottom
of the totem pole when it comes to training and compensation. Nothing
is worse than when your firm announces an exciting new product or
service, and someone from the media, a potential client or new supplier
calls in and in answer to their questions, gets a puzzled ‘Huh?’ from
whomever answers the phone. Bring them into pre-planning for these types
of launches…
Prof Bruce @ 8:23 am
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Intrapreneurs and Intrapreneurship
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Productivity in the Digital Age—
Posted on
Sunday 11 October 2009
Learning the Human-PC Interface and Why Smart Phone Users May be Unproductive
I have learned a lot from watching my kids work, especially on their
laptops or PCs. The human-machine interface is incredibly important to
our national productivity and most people relate poorly to their
PCs—other than write email, prepare a PowerPoint presentation, use a
word processor program and (perhaps) a spreadsheet program, most folks
can’t do much with their PCs.
They can’t for instance: manage and edit images, build websites, load
or edit video, add music or animation, copy what’s on their screen, use
a desktop search program, organize and properly store their own info,
make backups, digitize paper files and give them proper names so they
can actually find them again, use some of the 10,000s of free software
tools that are on the web, really harness the power of spreadsheets, use
social media tools like Twitter, Yammer and Facebook to communicate
with and learn from some really smart people, use a server, use a FTP
(file transfer protocol) piece of software to load files to their own
server for back up and also so they can have secure access to all their
data from anywhere there is an Internet connection, do free calls and
con calls on the net, use project management software to organize their
work flow, reverse out the work on the Internet to their supply chain
and clients or customers, create custom products or services from
standard inputs using the web, store their data in the cloud, concept
share, mind map, use free CRM tools, use online accounting tools—some of
which are free, write a blog, set up a store, use pay pal, try hosted
e-commerce, do an online auction, use free marketing sites like Kijiji
or Craigslist, create an online poll, use a managed list to send out a
newsletter, find stuff and do research using Google, Amazon and other
free platforms, organize their desktops for maximum utility, customize
their browser for rapid access to data and applications they need,
create their own social network or news agglomeration site, add ads to
their sites, improve their page rankings and optimize for search
engines.
If I can do this in middle age, there is no reason why others can’t
as well. All it takes is study and effort. The rewards are fantastic.
First of all, you aren’t beholden to others to help you do things—you
have disintermediated the techies for instance, the moment you start
building your own websites, writing your own blog, using Facebook or
Twitter. You can communicate with a mass audience in an effective way.
Second of all, your personal productivity will rise considerably. There
is no doubt that my personal productivity has risen fantastically since I
got my first Mac in 1983. I can be the Entrepreneur-in-Residence at the
University of Ottawa’s Telfer School of Management, the Executive
Director of Exploriem.org, a consultant and real estate and mortgage
broker at GMAC, the Founder of the Ottawa Senators, serve on a number of
committees, support numerous charities, assist my colleagues and mentor
my students because I have learned to interface and use my PC at a high
level.
But while I learn from watching how my kids and my students relate to
their various electronic devices, I have also noticed that they are
not, overall, very productive. I conjecture that the reason for that is
the tortoise v. hare analogy. My youngest son, Matthew, can do things on
his laptop about 50% faster than I can. So his peak productivity is
obviously greater than mine. In the graph below, I show his notional
productivity curve—labeled ‘Youth’. This curve shows three peaks, each
followed by long ‘rests’ in low valleys.
My productivity curve (labeled MA, Middle Age) also goes up and down
but is less peaky. My productivity is the area under the MA curve
(A[MA]) and Matt’s productivity is A[Y]. It doesn’t take a rocket
scientist to know that A[MA] > > A[Y].
Now wouldn’t it be fantastic if we could combine Y’s ability to
achieve much higher speeds with greater consistency so that one day A[Y]
> > A[MA]? Of course, that is why they say, youth is wasted on
the young.
Prof Bruce
Ps. Another thing I have noticed is that the accuracy of people using
smart phones to answer their emails or organize their calendars is
quite poor. I don’t know whether it is the small screens or the speed
they are trying to achieve but there is a false economy in all of this.
If you think you are being productive just because your inbox is empty
and because you have answered all your email within 5 minutes, you could
be wrong.
In one tech company I advised, they had to fire a person who thought
her job was to be a post office box. We tried desperately to break her
of the habit of cc’ing (or worse, bcc’ing) everyone in the company. She
was the source of about 60 to 70 emails a day and she would cc or bcc
about 15 people in the company on each of her responses. She was
creating nearly a 1,000 emails a day just inside the company that
employees had to review. Of course, over time (measured in a couple of
months), people would realize that many people were cc’d on each of her
emails and they would assume someone else would look after the problem.
It was as if she had never sent any emails. She just could not stop.
The firm implemented a successful policy that you could NOT use cc or
bcc on any emails. If you wanted to send a cc, you had to go into your
sent file and forward that to a colleague explaining why they needed to
read and act on this. It was a very effective policy.
I think smart phones have made this problem worse. People are tempted
to think that their work is done because they have emptied their inbox.
This is not a substitute for action and resolution.
And if responses are inaccurate and meetings and deadlines are missed
because they have been entered into their digital calendars
incorrectly, their personal productivity is going to suffer and those
who depend on them will suffer too.
It’s corny but still true—“The Hurrier I Go, The Behinder I Get.”
Prof Bruce @ 8:10 am
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Sponsorship Can be a Useful Form of Bootstrap Capital
Posted on
Saturday 10 October 2009
Even for SMEEs
When we were trying to Bring Back the Ottawa Senators in 1990, a team
that hadn’t played a game in the NHL in nearly 60 years, we had a lot
of help. We signed up 500 Corporate Sponsors at $500 each plus 32
Original Corporate Sponsors at $15,000 each for the Ottawa Senators
before the franchise was even awarded. Perhaps more impressively, we
sold 15,000 PRNs (Priority Registration Numbers—reservations for season
tickets for a team that did not yet exist) to the public for $25 per
PRN, non-refundable.
Of course, no one buys one season ticket, so these were sold in
groups of two. For their $25, potential season ticket holders got a nice
form signed by Cyril Leeder (now President of the Ottawa Senators and
Scotiabank Place) and a bumper sticker. PRNs were sold in twos and
fours, mostly to individuals and SMEEs.
Jim Steele (now head of Sens broadcasting) told me he got into an
argument with a guy on the phone late one night in November 1990 (the
team was awarded by the NHL on Dec. 6, 1990), got dressed, went down to
the bar where the guy was, convinced him of the merits of supporting the
cause and came away with 50 bucks for 2 x PRNs.
What that should tell you is that sales is not about somehow pushing a
button and all of sudden, hundreds or thousands of clients line up to
give you their money. This is about down-in-the-trenches street fighting
for each sale, one by one. That’s just as true for IBM as it is for the
most modest business person like the very successful middle-aged guy
who sells Polish sausages on Laurier Avenue in Ottawa outside the
University building where I work.
When Kevin Rose and his co-founder wanted to populate their news
agglomeration site (the hugely successful and delightful Digg.com), they
didn’t try to send out a mass email or advertise on TV, they called
1,000s of people themselves, one at a time, and asked them to
participate in the launch.
There is still no substitute for ‘shoe leather’.
In the case of the Sens, we raised more than $1.1 million from
sponsors and another $5.4 million from land owners in the form of Seller
Take Back Mortgages. STBs are another form of bootstrap
capital—essentially, the landowners who sold us about 600 acres for what
would become Scotiabank Place and associated development, provide some
of the financing for us to acquire their holdings.
The total campaign including the cost of visiting with all the
Members of the NHL’s Board of Governors, preparing the bid,
participating in meetings, buying the site for a MCF (Major Community
Facility) and so forth was about $9.7 million but sponsorships and STBs
significantly reduced that to about $3.2 million in cash.
Oct. 10, 2009 Sens Sponsors: Bring Back the Ottawa Senators Campaign
Corporate Sponsors $ 250,000.00 500 $500 each
Original Corporate Sponsors $ 480,000.00 32 $15,000 each
PRNs $ 375,000.00 15,000 $25 each
Total Sponsorship Raised $ 1,105,000.00
Campaign Costs
Scotiabank Place Site and Lands ($7,200,000.00) 600 acres $12,000 per acre
Campaign Costs ($2,500,000.00)
Sub-Total Campaign Cost ($9,700,000.00)
Seller Take Back Mortgages $ 5,400,000.00 75%
Net Cost of Campaign $ (3,195,000.00)
Now I hear all the time that this is fine for larger businesses like a
NHL hockey team but that it doesn’t apply to a small startup. But I
find that if you think about it for a minute, you can apply this
practically anywhere.
A couple of guys I know were in my office last week—they have a
series of products they are trying to get off the ground—a curved golf
club, a curved hockey stick, a curved walking stick and a curved ski
pole. Their company (pleasantly called WOW) believes that, for example,
their curved driver helps duffers hit the ball straighter while their
curved hockey stick they say helps make a player’s shot ‘heavier’. (I
wrote a piece of the science behind a hard versus heavy shot in hockey: https://www.dramatispersonae.org/HeavyHardShotsVersusFastSlapshot7December2006.htm).
I cautioned them against a GO-BIG-OR-GO-HOME strategy; it almost
never works for these types of gadgets. I told them to use a go slow
approach. Build a 10 cent website using a platform like Yahoo! Small
Business (https://smallbusiness.yahoo.com/ecommerce/), go to a few trade
shows, ask a few high profile folks to try their wares and endorse them
if they like them (but don’t offer them any money because they don’t
have any to give away), trade links with some friends on the web to
boost their Google page ranking, basically, do stuff that is
inexpensive.
Their goal (which I set for them) is to build a sustainable PB4L
(Personal Business for Life) that within a few years will earn $120,000
per year PROFIT, spilt between the two of them. If one of their gadgets
takes off terrific. If not, a PB4L that produces some income will be
better than nothing and they will take great satisfaction from it.
Their idea when they walked in the door was to raise $10,000 to
$20,000 from, say, 30 people and then blow it all on big product orders
from China, an advertising campaign, a presence in major retail chains,
investment in celebrity endorsements, getting major distribution players
to back them and so forth.
This approach usually spells disaster. If you have a game you have
invented or a gadget of some kind, the established players in those
industries don’t want to hear from you. Parker Brothers, Milton Bradley,
Nike, what have you, don’t want unsolicited proposals—they will simply
return them to you unopened with a form letter saying ‘we didn’t look at
them and don’t send us any more’. The reason? They are deathly afraid
you might claim later that your product is similar to one they were
already developing. They have found juries only too willing to believe
(often justifiably) that a large corporation has essentially stolen an
idea from a small scale inventor and damages (especially in the US) can
be huge.
Plus these established players hog all the shelf space and don’t want to share it with you.
For every Air Hog or Trivial Pursuit there are millions of ideas,
concepts and patents that never amount to anything and often cost their
inventor everything. For every Robert Kearns, the inventor of
intermittent windshield wipers who won a multimillion-dollar lawsuit
against Ford, there are hundreds of thousands who gave up.
I believe you have better odds of making a fortune by buying a Lotto 6/49 ticket than you do with most gadgets or gizmos.
So aim low, go slow, don’t risk too much money and you may get a pleasant surprise on the upside.
The guys also asked me if they could sell their ideas to one of the
established players. To those of you who follow my writings, you already
know the answer to that—no. Ideas are abundant and cheap. Large players
buy cashflow and market share; in my experience, they won’t pay a
farthing for just an idea.
Another thing that can really assist these guys is for them to get
some sponsors. This was a new idea for them and we discussed how it
might work:
1. They believe, and I agreed, that the curved driver was probably the best gadget to start with.
2. I told them that the golf audience is a highly desired one by advertisers but hard to reach.
3. What if they put the logos of a few sponsors on the shaft of each driver?
4. Law firms and accounting firms want to reach this audience and they
have (at least in Canada) restrictions on how they advertise. Adding
their logos and website URLs on the shafts of these drivers would suit
them perfectly.
5. Other potential sponsors might include high end autos, a beer company
and purveyors of luxury goods, maybe even resorts and hotels.
6. Every time a golfer drags that driver out of his or her golf bag, they see these logos—they aren’t zappable like TV ads.
7. They continue to work for the life of the club—maybe five or more years.
8. The clubs might retail for $200 and cost about $60 each. Perhaps they
could put five logos on their drivers for, say, $6 per club so half
their costs are covered by sponsors!
9. If the average golfer plays 12 rounds per season and brings his or
her driver out 18 times, then the cost to the sponsor for 1,000 clubs is
$4.63 per thousand views. This is the fundamental measure of
advertising efficiency, known as CPM (Cost per Thousand, the ‘M’ in the
Roman numeral for thousand).
10. That is a very reasonable CPM; CPMs can vary from $5 for newspapers
to $15 or more for glossy magazines to as much as $60 for highly
targeted web ads. Mail drops in Canada can cost 15 cents each when
delivered by CPC (Canada Post Corporation) which obviously works out to
$150 per thousand. So $4.63 to deliver a highly valued audience is a
pretty good value proposition.
11. Co-op advertising is the way of the future—more brands will be
sharing the same space. If you are selling a high end car why not have
an attractive person modeling top end clothes and jewelry to help defray
some of the costs. That is, sponsors can have sponsors! Firms will pay
to have their products placed in other ads!
Here is how you calculate CPMs:
Oct. 10, 2009 CPMs for Golf Driver
Average 12 rounds per year
No. of Holes 18
Use of Driver 18 100%
Views of Driver 216 per year
Life of Club 6 years
Views of Driver 1296 during life of club
Cost of sponsorship $6
Cost of sponsorship $6,000 1,000 clubs
CPM $4.63
Sponsors dollars help defray your costs but sponsors can become
delivery channels too. When the guys from WOW sign up a sponsor, the
agreement might look like this:
A. They sponsor 1,000 clubs at $6.00 each.
B. They agree to sponsor another 1,000 clubs after the first 1,000 are sold.
C. They agree to buy (at a reduced price, say, $175 instead of a retail
price of $200), 20 clubs per year for the next three years.
D. They have to pay 50% of their sponsorship on signing and the balance within 6 months.
E. They pay for their first 20 clubs—50% on signing the Sponsorship
Agreement and the balance within 30 days of receipt of their order.
F. They agree to feature WOW on their Partners Page of their website and
all of the co-sponsors too. They link to all of them and WOW and their
co-sponsors link back to them—they cross promote and raise everyone’s
page rankings in Google.
If you look carefully at the above, you will see that there is an
emphasis on cashflow. Under this model, if they sign up five sponsors,
they will end up with $23,750 right up front—enough to pay for their
first order of clubs, go to a few trade shows, set up a simple website
and have some money left over. They will also be expecting another
$23,750 after they deliver the clubs to their sponsor and collect the
balance of their sponsorship.
Here is their simple cashflow model:
Cashflow Model
No. of Sponsors 5
No. of Clubs 1,000
Cost per club $6
Cost of Sponsorship $6,000
Deposit $3,000 50%
Purchase of Clubs 20
Purchase Price $175 per club
Purchase Price $3,500 for all clubs
Deposit $1,750 50%
Cash on hand $4,750 per sponsor
Cash on hand $23,750 total
Just as important, their sponsors will do something with the 20 clubs
they have been ‘forced’ to buy—they will give them away at golf
tournaments that they host, they will give them to favored clients and,
guess what, they have now become powerful distribution channels for WOW.
I find sponsorship opportunities everywhere. A couple of young
fellows came to see me recently and I sketched out a plan for them to do
some ZERO COST GOODWILL MARKETING for their new business, Acme
Enterprises in Nashville (the names and places and numbers have been
changed).
They wanted to do a food drive for the Nashville Food Cupboard and
they wanted to offer as an incentive to get people on board a draw for
tickets to a Titans game. They had arranged to get a private suite from
the Titans for $2,000 (a reduced rate from what the normal commercial
value would be) subject to their being able to find the money. They had
30 days to come up with the dough.
Here is the program we set out for them:
1. They decided to support the Nashville Food Cupboard, a worthwhile cause.
2. It would not only help the Food Cupboard which was experiencing a
shortage of food and a simultaneous increase in demand as the economy
worsened but it would also help build their brand and that would help
Acme earn the trust in the community and that would mean that Acme could
better compete in a tough marketplace and sell more of their services.
3. They got a favourable rate from the Titans for a suite ($2,000) but
still had to find the money to cover it—they just didn’t have it in
their budget for this year but knew they needed to do something to help
the community and to help themselves.
4. Everybody who brought in food donations would get one ballot for every item—you bring in ten cans and you get ten ballots.
5. They would hold a draw and the winners (there would be four of them) each get a pair of tickets to the suite.
6. Then they would go out and sign up four other local businesses to co-sponsor the food drive.
7. Each sponsor would throw in $500—for that, they each got the right to
accept food donations in their place of business (driving more traffic
to their stores and offices). Plus they each got two tickets to the
suite.
8. The suite holds 20 people—four winners of the draw would use 8 seats,
the four co-sponsors would use 8 seats and the two owners of Acme would
each get one. Plus they held back two seats for the Nashville Food
Cupboard—one for the Executive Director and one for a guest of the
ED—presumably a key sponsor of the Food Cupboard would also like to
attend.
9. Donations would be accepted at Acme and the other four locations for three weeks prior to the game.
10. Every Friday would be dress down day and every employee would wear a
Nashville Food Cupboard t-shirt. On the back would be the names of the
four sponsors and Acme.
11. The employees would receive these really well designed t-shirts for free.
12. Each co-sponsor would pay 125% of the cost of the shirts—Acme would
pay nothing—since they are putting in their share in the form of SE,
sweat equity. After all, they are organizing the whole thing, putting in
lots of hours including helping the Food Cupboard’s truck make the
rounds and pick up the donated items. Plus they are driving a lot of new
customers to the four co-sponsor locations.
13. It would be a fun afternoon at a Titans game, hoping they can win a
game this season (the Titans are off to an 0-4 start in 2009).
14. They would also put out media releases—announcing the food drive and later the winners with happy smiling faces everywhere.
This is the model we sketched out on a piece of paper for the guys:
So sponsorship applies not only to large businesses like pro sports teams but to startups and SMEEs as well.
Prof Bruce
Prof Bruce @ 9:25 am
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Six Reasons to Call Your Independent Mortgage Agent
Posted on
Tuesday 6 October 2009
Instead of a Bank
Six reasons you should use a mortgage agent:
1. Your mortgage agent only works for you.
2. Your mortgage agent can get you the most competitive rates and terms for your mortgage.
3. Your mortgage agent only does one credit check—your credit score isn’t impacted by multiple hits from different lenders.
4. Your mortgage agent won’t sell you other products you don’t need or will overpay for.
5. Your mortgage agent gets paid (usually) by the Lender—you don’t have to pay him or her.
6. Your mortgage agent saves you time—do you have the time to get around
and see up to a dozen Lenders and complete a dozen applications so you
can get the best rate and terms?
I predict big things ahead for the independent mortgage brokerage
industry in Canada as the market penetration rate goes from around 30%
now to 70% (around where the US is today) in the next few years and
Canadians wake up to their mortgage agent’s value proposition.
Prof Bruce
Prof Bruce @ 1:13 pm
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Two Sentence Explanation of a Value Proposition
Posted on
Saturday 3 October 2009
I am working with one of my former students, a brilliant entrepreneur-in-the-making, Craig Schoen.
One of the things that an entrepreneur must be able to do is to be
able to explain his or her value proposition/ differentiated
value/’pixie dust’ in a simple, direct manner that pretty much anyone
can understand. It’s a riff on the 2-minute Elevator Pitch
For Craig’s latest startup, we have boiled it done as follows:
“At its core, UCoursePack.com
adds social media to e-course packs allowing Profs to add comments
during the term that all their students can immediately see and also
allowing students to see the comments made by other students. Hence,
they can learn not only from their Profs but from each other too.”
You be the judge if we have explained it satisfactorily in one or two sentences…
Prof Bruce
Prof Bruce @ 12:35 pm
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Posted on
Saturday 3 October 2009
Will We One Day See 9 NHL Teams in Canada?
As a member of the last group to successfully found a franchise in
Canada, I have watched Jim Balsillie’s attempts to land an NHL member
club with great interest. His determined efforts have provoked rage in
some quarters and admiration elsewhere, but with his third attempt to
acquire and move an NHL franchise in ruins, one could question the
effectiveness of his approach.
Litigation has been a big part of his overall strategy. However, when
you are trying to join a private club, rarely do you want to litigate
your way in. Whether it is a golf and country club, gym or professional
sports club you are trying to become a member of, going to court is
unlikely to win you many friends among the existing membership.
If Balsillie had been successful, I predict he would soon have found a
sub-group of owners that would have allied themselves with him and NHL
insiders would gradually have accommodated themselves to his presence.
Money talks.
But still, if I had been asked by Balsillie’s group for any advice,
litigation is one tool that should have been left in the toolkit. The
NHL is led by two clever and formidable lawyers and they are not afraid
of litigation.
So who actually owns a franchise? Certainly, lawyers for the NHL
would argue that owners “own” their teams subject to the conditions of
their franchise agreements and subject to the bylaws of the NHL
(contained in the NHL’s constitution, known by its Latin name, lex
scripta.)
So a franchise owner has certain rights and obligations. Bankrupt
franchise owners have many fewer rights and, under certain
circumstances, the NHL has the right to revoke a franchise and take
control. But whatever lawyers may argue, ultimate control over the
destiny of any sports league comes from the source of all revenues — the
fans. Again, money talks.
Bill Wirtz (Chairman of the Chicago Blackhawks for many years, now
deceased) once told me that the key to running a successful franchise
was to fill the building with fans. This creates a sense of excitement;
sponsors want to be associated with those feelings. Everything flows
from the fans—suite leases, sponsorship, signage, parking, F&B, all
the revenue streams flow from one source—attendance.
And attendance flows from the close connection between fans and
players; after all, the fans don’t come to see the owners, they want to
see and touch and talk to the players.
So one could argue that the team actually belongs to the fans,
without whom a franchise is not viable. Thus, the owners and the leagues
can be said to hold these franchises in trust for their stakeholders
and, in particular, their fans; and that these franchises should not be
moved unless all options have been exhausted and then exhausted again
and, finally, once more.
In the event that a franchise is moved, the intellectual property
(the name, logo, history, awards, banners, video vault, etc.) should be
held by the league in trust for a future franchise for that city. And
clear guidelines should be established for the grant of an expansion
franchise to the city so dispossessed, so that some future group will
know exactly what it has to do to re-found the Jets, the Nordiques or,
for that matter, the Coyotes, if they ever do move.
When my group was pursuing an NHL franchise, I was asked by one owner: “Do you want a new one or a used one?”
My preference, indeed the only option we looked at, was a new one —
we wanted an expansion franchise rather than a relocated one. To me,
renaming and re-locating an existing franchise seems to tarnish the
brand right from the start. The only way to buy and relocate a “used”
franchise is by disenfranchising fans somewhere else, hardly an
auspicious way to begin. How do you think Baltimore fans feel to this
day about the NFL’s Colts? Just go to a Ravens game and sit in the end
zone with a Colts jersey on to find out for yourself.
Balsillie wanted to purchase an existing franchise and move it to
Hamilton. If instead, he had sought an expansion franchise for Hamilton
(the course of action more likely to succeed in my view), the fee he
would have paid would have included an infringement payment to any club
that is nearby (i.e., the Maple Leafs and the Sabres). There is plenty
of precedent for this — when the Devils relocated to New Jersey, they
paid infringement fees to the New York Islanders and Rangers, and the
Philadelphia Flyers.
Plus, the expansion fee Balsillie would have paid would have been
shared by teams. Thus, league members would have had a financial
incentive to bring somebody like Balsillie into the club. And the clubs
being infringed upon, Toronto and Buffalo, would have been compensated
for that, and they too would have had some type of financial incentive
to make the whole thing work.
NHL deputy commissioner Bill Daly has argued that the relocation of
any existing NHL club requires a simple majority vote by league members
and that there is no veto by any individual club. This argument is
central to the league’s view that the NHL constitution meets the test of
U.S. anti-trust law and that there is no undue restraint of trade
created by lex scripta.
Some member clubs might feel that they do, in fact, have a veto. What
they actually have is the right to compensation for infringement of
their territory, but not the right to unilaterally reject such an
infringement. This is an important distinction, a type of fine print
that lawyers love.
When I sat on the NHL’s expansion committee, we heard from two
applicants: Wayne Huizenga for what would become the Florida Panthers
and Michael Eisner and the Disney Company for the Mighty Ducks.
For the Anaheim team, the $50 million expansion franchise fee was
paid as follows: $25 million to the NHL and $25 million (at $5 million
per year for five years) to Bruce McNall and the L.A. Kings, whose
territory was infringed by the Ducks.
The NHL defines the franchise area for a member club from the
boundary of, for example, the Corporation of the City of Ottawa (the old
city not the new city) plus 50 miles. So if someone wanted to establish
a franchise in Gatineau or Red Deer or Hamilton, they should first do a
deal to determine the amount of compensation that the rights holders
being infringed (the Sens, the Oilers and Flames, and the Leafs and
Sabres) would receive.
Is that a tolerable restraint of trade? I don’t know but it seems
reasonable to me. If you had just paid $50 million for a franchise in
the 1990s (or $140 million or $212 million or whatever the going rate is
today), you probably would expect to be able to generate revenues
without undue interference within your defined territory and, if such
interference happened, then you would expect to be compensated.
I know that when the modern-era Sens were re-established in the
1990-1992 period, we did a deal with the Canadiens to trade mid-week
broadcast rights — Montreal could broadcast their games into
Ottawa-Gatineau (where they had a lot of dedicated fans) and we could do
the same in Montreal. Initially, this was a deal highly in favour of
the Canadiens but the Sens have been seen in Montreal for 17 years and
have a following there now. Plus there is the fact that Montreal is a
bigger market than Ottawa so it probably balances out today. No money
has ever changed hands.
The same deal was offered to T.O. but the offer was declined by the
Leafs. In fact, the Maple Leafs threatened to broadcast their mid-week
games into Ottawa without prior agreement with the Sens right up until
the first day of their first season in 1992-1993. I told them that this
was going to be the greatest day in the modern history of the Ottawa
Senators up to that point in time because, if they infringed on the Sens
territory without our permission, all their broadcast revenues could be
forfeit under lex scripta to the Sens. The Leafs wisely did the right
thing and did not broadcast into Sens’ territory without a prior
agreement on compensation.
And this comes to the crux of things. The Leafs are the wealthiest,
most widely followed franchise in the NHL. There is no point in
bellyaching about it if you are a fan of any other NHL team. Toronto
fans are terrific — they love their team even if it hasn’t won a thing
since 1967.
Their local broadcast rights are probably worth more than $40 million
per year today and they don’t want to share this revenue stream with
anyone else. With a cap rate (capitalization rate) of, say, 7.5% p.a.,
this makes their local broadcast rights alone worth more than
$500,000,000. So Balsillie, or some future bidder to locate a franchise
in Hamilton, should, in my view, make a deal for compensation with both
the Leafs and the Sabres. And they need to make that deal before they
deal with the NHL — as the Mighty Ducks did. Leagues are very reluctant
to impose a second, third or fourth franchise in a metropolitan area
without prior agreement on the amount of compensation those teams being
infringed on would receive.
For the Maple Leafs, it just comes down to money but for teams like
Ottawa, the Sens would be hard pressed to survive if they did not have
some type of control over their own territory.
Indeed there is no doubt that the Sens would not have survived to
this day without the intervention of Gary Bettman during the run-up to
and in the bankruptcy of the team here in Ottawa. He went to bat for the
team many times during the era preceding the ownership of Eugene
Melnyk.
Jets and Nordiques fans may ask where was Bettman during their last
days? But Ottawa fans should recognize what he did for this team.
When the Sens were admitted to the league, the team’s NHL payroll
(including its minor league affiliate) was around $6.5 million
(Canadian) per year. John Ziegler, then president of the NHL (and soon
to be replaced by commissioner Gary Bettman) told us to expect player
salary increases of about 10 per cent per annum.
Instead, salaries in Ottawa soared to more than $42 million (U.S.)
and the Canadian dollar shrank from 90 cents when the franchise was
granted to just 64 cents. Ottawa’s payroll growth during this period was
around 33.5 per cent a year; the enterprise was not sustainable. Nor
were the Jets and the Nordiques — a major adjustment was inevitable.
The Commish had nothing to do with this realignment of currencies
and, whatever else Bettman may have done to madden Canadian NHL fans, he
can not be blamed for this.
The NHL is probably an effective monopoly, as are most major
professional sports leagues. Is that bad? Well, experience shows that
rival leagues tend to cause player salaries to grow even faster, and
that is not good for smaller-market teams like Ottawa.
The arguments made in Judge Redfield T. Baum’s courtroom in Phoenix
included raising the spectre of pro sports being a monopoly and engaging
in restraint of trade. In my view, Judge Baum wisely refused to allow
Bankruptcy Court to write new anti-trust law which, in effect, would
have freed pro sports teams from their local obligations (to their
creditors, to their landlords, to their fans and sponsors) and made
franchises much more mobile — just starve them of capital, bankrupt them
and, whoosh, off you go.
This is not the right direction for any league or its fans.
Having said all of this, I am in favour of having more NHL teams in
Canada — this would be good for hockey fans, for revenue-sharing with
the players, and for the league itself. What I am not in favour of is
relocating existing teams.
If the Carolina Hurricanes can be successful in Raleigh (by, in part,
winning the Stanley Cup and icing competitive teams), the NHL can
probably be successful pretty much anywhere.
I believe the league should set out clear criteria for the return of
the Winnipeg Jets and the Quebec Nordiques regarding arena size and
calibre (minimum of 18,500 seats); season tickets sold (minimum of
12,000); suites sold (minimum of 90 suites); and an expansion franchise
payment.
This will allow new ownership groups to coalesce in those places and to build definitive plans for the return of the NHL.
With Hamilton, the matter is more complex. The above criteria are
still required but there is the matter of infringement payments to the
Leafs and Sabres. Certainly, the Leafs are not going to accept a
McNall-like payment plan over time. But a deal featuring a large portion
of television rights could work. Perhaps Mr. Balsillie or another
bidder could offer, say, 50% of their local broadcast rights for the
first ten years of the franchise operation followed by a schedule of
diminishing percentages over the next ten years.
Whatever happens next, future bidders for NHL franchises should do it in concert with the league, and their future partners.
Prof Bruce
Prof Bruce @ 10:45 am
Filed under:
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Rules? There are no rules in entrepreneurship.
and
and
Posted on
Friday 2 October 2009
For Entrepreneurs
I asked a number of people what they felt were the most important
lessons they learned from Donald Trump’s recent visit to Ottawa. That
is, for entrepreneurs or would-be entrepreneurs, what could they take
away from their day with The Donald?
Here are the six key lessons gleaned from attendees:
1. Focus. Focus. Focus. (Entrepreneurs tend to come up with new ideas
all the time and they can be distracted by that. Without focus, they
will never succeed, ed.)
2. Show determination and passion. (Reverses and low points are inevitable. When the going gets tough, the tough get going.)
3. Set goals and meet those goals. (Humans are amazingly good at goal
setting and achieving goals. If you are a top skier, you want to race
after your chief rival; once you know their split times, you can set
your goal, visualize it and win…)
4. Don’t do too many things at once—better to do one or two things well
than a dozen poorly. (Entrepreneurs have to do most things in parallel;
they have to be concerned with earning enough to pay the bills. It’s a
race. But there is no point flitting from one thing to the next if you
leave that last thing incomplete or badly done. DIRT-FT: Do It Right The
First Time.)
5. Do the hard stuff even if you don’t want to. (If you don’t show up,
you can’t win. Half the battle is just getting up each day and doing the
things you need to do, even when you don’t want to. Believe it or not,
you can learn a lot from actors. They know the show must go on and they
have that lesson drilled into them from the moment they performed in
their first school play. They (mostly) show up even when they feel
terrible.)
6. Be ambitious—it takes as much effort to do a big deal as a smaller
one, so do big things! (The Donald is a swing for the fences type of
person. He is not afraid of dreaming big dreams and then trying to make
them happen and often succeeding.)
Prof Bruce
Prof Bruce @ 7:54 am
Filed under:
1964 The Tribute Band and Guerrilla Marketing
Posted on
Thursday 24 September 2009
This is a cover band that has been together for 26 years,
does 140 live shows per annum and generates an estimated $6 million
gross a year from those live performances. That amounts to more than
$158 million over their careers.
The four mop-top, lookalike Beatles would be embarrassing to watch
(they are 40 somethings acting the part of the Beatles circa 1964 when
the boys were all in their 20s) if it weren’t for the fact that their
ability to play (especially the chap in the role of George Harrison)
their instruments is top notch and the music is contagious and fun.
They were in Ottawa this week—at Centrepointe Theatre—and were so popular that they were held over for a third show.
What impressed me was that 2/3 of the way through their show, they
asked the audience to get out their cell phones, call a friend and let
their friends listen to the next tune. I salute them for their (light)
embrace of technology and guerilla marketing—they have figured out that
in the file-sharing world of the 21st Century, they need to adapt their
business model to new realities. They make their money by selling
tickets for live shows and, at those live shows, selling CDs* and
merchandise. Most music companies are trying to forestall new
technology, deny it, sue it out of existence or wish it all away. As a
result, iTunes and Apple Computer are making all the money and the long established music publishers are having a tough time as CD sales fade away.
(* GOB, a Canadian punk band from Vancouver (with songs like Oh! Ellin, I Hear You Calling
and others) takes this one step further. During a break, band members
will actually visit with fans and autograph their CDs. This not only
creates collectibles but cements their relationship with their fans and
creates a persona for the group that is a powerful ‘man-of-the-people’
type of thing.)
The percentage of the audience that whipped out their cell phones
last night was about 25% which means that about 225 people were called.
If that holds true at most of their gigs, then this would mean that an
extra 31,500 people get to share one tune by 1964 The Tribute band each
year. The cost to the band of all those cell phone calls—de nada, they
are paid for by their audience. The cost of directly reaching 31,500
potential new customers each year for the band—a negative $6 million,
since people pay them to show up.
Prof Bruce
Postscript: here are my rough calculations for the band:
Sept. 23, 2009 1964 The Tribute band
Ticket price $49.75
GST/PAT 15%
Net Ticket Price $43.26
Tickets 900 per show
Total $38,934.78
Merchandise $5 per cap
$4,500
Total $43,434.78
Number of shows 140 per annum
Gross from live performances $6,080,869.57 per annum
Number of years doing live show 26
Gross from live performances $158,102,608.70 since inception
Guerrilla Mktg “Turn on your phones. Call a friend and let
them listen to the next tune.”
Percentage of Audience 25%
New people turned on 225
Number of shows 140 per annum
New people turned on 31500 per annum
Prof Bruce @ 6:50 am
Filed under:
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Rules? There are no rules in entrepreneurship.
Posted on
Wednesday 23 September 2009
When Your Kids Finally Move Out
1. The telephone rings and, surprise, it’s for you.
2. Your computers don’t have any viruses because you don’t download
anything without thinking about it first to make sure it is from a
trusted source and when you fix stuff, it stays fixed.
3. Your home is no longer a hotel for your kids and their friends to
stay at and your fridge stays full for longer than two days.
4. Your career as a chauffeur has, happily, come to an end.
5. You find out that you have more disposable income than you ever thought you would.
6. You don’t have to listen to your daughters fight over everything/you don’t miss the door slamming, pinching, hair pulling or yelling.
7. You leave your house neat and tidy and when you come back, it’s
still that way and, even better, your tools don’t walk away by
themselves at approximately the same time as your boys left.
8. You don’t have to evict strange kids from your house—kids you’ve
never seen before and who appear to have become ensconced on your coach
in the middle of the night with no apparent connection whatsoever to you
or your family.
9. You find out how much you have in common with the woman you
married and realize what a great person she is and you re-introduce
yourself.
10. Best of all, these cool young adults do come visit you once in a
while—and they are polite, responsible, interesting to talk to and have
discovered adult habits like going to bed and waking up on time to do
the things they need to do in this world to be successful—and you
realize what great kids you have.
Prof Bruce
Prof Bruce @ 1:47 pm
Filed under:
and
Writing, Research and Experimentation
Posted on
Monday 21 September 2009
Funding Help for Canada’s Medicare System
My Dad was one of the Commissioners on the Royal Commission that led
to the founding of Medicare in Canada. I am pretty sure that if he were
alive today, he would want to help Canada and its Provinces find a
solution to their health funding problem that would leave the system in
tact but bolster its finances in some new, innovative way.
Canada could do worse than looking to Japan where an aging population
has led that nation to look to medical tourism to help fund their
system. I have long felt (especially when the CAD $ was at 64 cents to
the USD) that Canada, with its outstanding medical facilities and
personnel, could appeal to US Health Care Providers and Insurers to send
their patients to Canada for care.
It seems incredible to me that Canada, a nation with 33 million
citizens, can not attract more US tourists to this country than the US
with its 350 million population draws from Canada. If Canada marketed
its tourist destinations as effectively as, say, Disney World, Canada
should draw ten times the number of tourists from the US than the US
does from Canada. The fact that we don’t even draw the same number is an
indictment of Canada tourism efforts, in my view.
On the medical tourism front, the Japanese Ministry of Economy, Trade
& Industry teamed up with ten of their largest hospitals and
various travel agencies to lure medical tourists from Russia and other
nearby nations (Kenji Hall, BusinessWeek, Aug. 17, 2009). Canada has
another advantage—it won’t need to provide US-based medical tourists
with translation services.
The surplus from medical tourism could be used to help fund Medicare.
This is not a new model for Canada—many Provinces are already using
tuition from foreign students (many times higher than for students from
their own Province) to fund tertiary education.
Prof Bruce
Prof Bruce @ 7:40 am
Filed under:
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Pre-selling, Finding New Clients, Keeping Existing Ones
and
Rules? There are no rules in entrepreneurship.
Negative Cost Selling—It’s Everywhere
Posted on
Friday 18 September 2009
Satellite Communications Company Personal Tracking
I ran into a friend of mine the other day—he works for a large,
international satellite communications company. I never know where he is
going to be—he travels to all the world’s hot spots—Afghanistan and
Iraq included.
He is an engineer who can talk the language of business; he
understands that he needs to make a compelling case to a potential
client before they will invest with his firm. He knows how to explain
his company’s value proposition and, perhaps more surprising, he can
sell using the concept of negative costs.
One of the hottest products offered by the firm today is their
personal tracking devices that executives can port with them wherever
they go. These devices, not much bigger than a PDA, report via satellite
the whereabouts of the individual—they track him or her in real time.
If she or he goes out of a pre-defined travel path (similar to a
flight plan for an aircraft) by more than a certain preset distance,
alarms go off.
Companies equip their executives with this type of tracking device to
improve their personal safety and meet their duty-of-care obligation to
these staff members.
If they can convince major re-insurers through field experience that
these devices lower the risks of kidnapping, they should be able to
lower insurance rates, possibly enough to more than pay for the costs of
these devices and their operation as well.
If you can explain your value proposition by saying that not only are
you saving lives but also doing so in a way that doesn’t just lower
client costs but actually reduces their costs below zero (i.e., a
negative cost results) that is a powerful combination and a strong
selling proposition.
Prof Bruce
Prof Bruce @ 1:23 pm
Filed under:
and
Pre-selling, Finding New Clients, Keeping Existing Ones
and
Posted on
Friday 18 September 2009
Personal Business for Life—Case Study: Two Monkeys Coffee & Tea House Inc.
Introduction
Here is a short case study of a new coffee house set up in suburban
Ottawa by two partners, both in their 30s, Jill Sheppard and Rob Kay,
who each own 50% of the business. The current business environment is
fraught with peril—they have opened during a world-wide economic crisis
that began in October 2008 and continues, the location is a suburban
mall (in Barrhaven, a suburb outside of Ottawa, Canada) that is close to
a relatively prosperous residential area but the storefront is not easy
to see or find, there is a lot of competition from established national
chains like Starbucks and Tim Horton’s as well as local chains such as
Bridgehead.
The students’ job is to read Jill’s description of the business below
and identify the risks for the business in addition to the ones
described above.
The elevator pitch that comes out of your analysis must describe all
the risks you have found and identify possible solutions. You are
talking to an audience made up of family and friends who are thinking of
investing in this business.
The Case Study
From: Jill Sheppard
Sent: Friday, September 04, 2009 12:27 PM
To: Firestone, Bruce
Cc: Rob Kay
Subject: Two Monkeys Coffee & Tea House Inc.
Hi Bruce,
It was a pleasure to see you yesterday in the shop; it seems life
after we worked together at (unnamed tech co., ed.) has been good for
both of us.
I was thrilled to hear you enjoyed your muffin and tea yesterday –
the next time you come in I will try to coax you into trying one of our
loose leaf teas, I know you will enjoy every drop.
I have attached photos of the shop in hopes of taking you up on your
offer to be one of your students’ case studies. In terms of our “secret
sauce”, we believe there are four major components that contribute to
our ongoing success.
A. The first is my mom – she does all our baking and soup
making. That’s not just a name we put on the cook, she really is my
mom. Everything we serve is made fresh on site. Our soup is made daily
from fresh ingredients and lots of love. Our regulars don’t even ask
what the soup and sandwich of the day is, they just order it and tell
us: ‘It doesn’t matter what it is, it’s going to be good.’
Mom’s Cooking
Is Delicious
B. The second is our kids’ zone. Without a doubt, we are the
most family friendly coffee shop in the city. We are parents first and
we have designed the shop from a parent’s perspective. We have given
the front of our shop a traditional coffee house layout to ensure we
satisfy the need of those without “little monkeys”. We feel it’s a
great blend of both worlds. (Moms and Dads can actually go someplace
and get a tea of coffee and bring the tykes. No complaints here about
rambunctious kids, Ed.)
Kids’ Zone
C. We wouldn’t be an outstanding coffee shop without our fair
trade, organic, locally roasted coffee, prepared fresh 15 minutes from
our shop. It could only be fresher if we roasted in the shop ourselves,
which we won’t do for several reasons. Our tea selection is growing
almost daily. The best thing about being independent is the ability to
react to our customers’ requests. We can order any flavor as often as
we need to. Our suppliers are first rate and our relationship with them
ensures continued success for all.
D. And of course, we couldn’t be a great place to hang out if we
didn’t have a décor that worked for adults too—with comfortable seating,
lots to read, Wi-Fi wireless Internet (for free) and great service.
It’s about the Décor too
I welcome the opportunity to discuss this with you in more detail.
Obviously I am passionate about my business and could talk endlessly
about it. I love what I do and I love making Moms and Dads happy when
they are here. One of the best comments I have heard in our short five
months is: “I spoke in full sentences today and I had my kids with me.”
The formula is easy… make the little ones happy and Moms and Dads are
happy too.
It was also nice to hear you say: “Why didn’t they have a place like this when my five kids were little!”
As you know, we hope to start franchising the business and spreading the joy to other areas too…
I look forward to seeing you again and hopefully providing you with excellent service and outstanding products!
Kindest regards,
Jill Sheppard, Two Monkeys Coffee & Tea House Inc.
Instructors’ Manual
This section is not to be read by students until they have completed their analysis and elevator pitch.
The risks the business is faced with include:
1. There are still two chairs in Heaven waiting for the first
partners to get there and still like each other. Will Rob and Jill (who
are business partners, have kids and are married but not to each other)
put in the same amount of capital, put in an equal share of the work and
have the same objectives over the long term?
2. A 50-50 partnership is one where there is no controlling mind—maybe
the two partners face a crisis and can’t decide what to do about it—they
are paralyzed/stalemated by their equal say.
3. Suburban malls tend to age poorly—there is little to prevent a newer
mall from opening up nearby and drawing traffic away from established
malls. Unlike most downtowns in Canada and Europe, there is no scarcity
of space that creates long lasting traffic patterns that also support
long lasting businesses.
4. They are renting space—many Landlords will raise rents for successful
tenants so that, if Jill and Rob are successful, the cream may end up
in the Landlord’s pocket.
5. Landlords are also fussy about changes to the premises and outside as
well—they may be limited in what they can do over time to change and
renew their premises.
6. What about relying on Jill’s Mom for part of their ‘pixie
dust’/secret sauce/differentiated value (DV)? What happens when Mom
retires?
7. Suburban neighborhoods change over time—kids grow up. Whole streets
tend to evolve together—soon the kids are teens and not going to Two
Monkeys for play time. Middle aged parents don’t tend to go out as much
either. Will Jill and Rob’s business dry up and blow away?
8. What about the name? ‘Two Monkeys’ may work today but will it work
long term? Aren’t demographic trends (favoring smaller families or
households with no kids) working against them?
9. What about City of Ottawa policies favoring downtown inside the
Greenbelt development over suburban development? Will that curtail
growth in Barrhaven where they are located?
10. They are thinking of franchising their concept but are they a generation or two too late?
11. Will franchising work without Mom in each store? Is there enough pixie dust and DV to sustain a franchising expansion plan?
12. Should they focus on getting their first store to the stage where
they have proved the concept, that it is sustainable, that they can make
real money before even thinking of franchising?
13. How can they survive competition from established chains like Starbuck and Tim Horton’s?
14. Could their competitors mimic part of their secret sauce by, for example, adding playrooms for kids?
15. Maybe they shouldn’t have opened during the worst recession since the 1930s?
16. Lastly, what is their ‘Magic Marketing Button’? Their storefront is a
bit hidden. What is something inexpensive and effective that they can
do to attract customers for the first time? We can be pretty certain
that they will probably keep their clients coming back once they have
stopped by once; but how to get them in the door that first time? If
they can’t find some marketing that really works in a cost effective
manner, their business is sunk.
Conclusion
At the end of the day, every enterprise is started not
because a hard-headed analysis says it will be worthwhile doing. New
enterprises are started as an article of faith—the founder or founders believe that they can make a difference and that their endeavour will succeed.
This is not an argument against quantitative analysis—setting goals,
financial and otherwise, is very important. Knowing what your breakeven
is, aiming for that plus enough to sustain you and your family and your
employees and suppliers and other stakeholders is incredibly important.
But most new enterprises take twice as long as you thought to get off
the ground and twice as much money plus three times as much effort. In
most cases, if you knew then what you know now (to paraphrase Bob
Seger), no one in their right mind would start a new business.
But I am proud of Jill and Rob and their new place and I believe
it will be successful. It is up to you, students, to deal with the
problems I have outlined above and identify other challenges and their
solutions. I get to be a cheerleader for these entrepreneurs.
Prof Bruce
Copyright. Dr. Bruce M. Firestone, Ottawa, Canada. Sept. 2009.
Prof Bruce @ 10:43 am
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