SFR 203: Hacking The Value Ladder...
"value ladder" "growth strategy" "money making business"
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These are some of the elements I look for when I'm deciding if I should enter a market. I only want the Red Ocean's where the cards are truly stacked in my favor. Here's how\u2026
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Today, I\u2019m gonna teach you the method I use to make sure that my value ladder crushes it\u2026
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And \u201cYep, you\u2019ve guessed it.\u201d There\u2019s a science behind the way I make sure that I have the right products at the right price points to sell at. If you want a money making business\u2026 and not just an expensive hobby, then listen up!
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There\u2019s gonna be a bit of Papa Larsen love, and I hope it\u2019ll help you understand why your business may not be doing that well - even though you seem to have all the pieces.
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...Just picture me in a Santa Hat, if it helps to ease the blow.
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THE VALUE LADDER
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Hacking The Value Ladder was a specific section that I taught during my recent live event OfferMind.
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If you don't know what a value ladder is\u2026
A value ladder is a way to design a business and map out your customer:
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- Acquisition
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- Ascension
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- Monetization
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- Continuity
In college, I was encouraged to write monstrous 35-page business plans, which were not even that executable by the time you were finished plowing through them.
Now, what you may not know is that the value ladder was kinda pioneered by Russell Brunson who did a whole lot of work to help figure out how to plot all those things on one graph - \xa0value ladders are a huge deal.
I never write business plans; I \u2018value ladder.\u2019 It\u2019s a way to simplify everything I'm doing.
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HACKING THE VALUE LADDER
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I have a value ladder for both of my businesses which means I know the exact next step I\u2019m building at all times - which is cool because it also means I know exactly what I'm NOT building as well.
If you\u2019re thinking, \u201cOk, Stephen, value ladders are awesome, but they\u2019re nothing new...\u201d
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I want to show you the specific order I use to attack a value ladder that allows me to create cash flow and build my business at the same time as acquiring customers.
But first, I\u2019m gonna cover the basics\u2026
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Traditionally, a value ladder looks like this:
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There are value ladders with more steps, but typically we draw them with three steps...
There are two axes:
- One across the bottom
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- One that goes up the side
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On one side we have "value" and the other side we have "price."
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Now, you might be a bit confused by this if you're brand new in this game... However, Price and Value are NOT the same thing.
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(This is a completely different topic which would be fun to rant on about sometime in the future.)
The more value you give, the more money you can charge moving up the top.
So \xa0when I'm planning how to actually tackle a red ocean, I always look at:
- The likelihood of me making money?
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- How many cards can I stack in my favor, before I even start?\u2019
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To do this, what I like to do is tier the price points that are already in existence inside the market I\u2019m hacking.
I look at three different categories inside the market, and ask:
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- What\u2019s the area of the cheapest price range?
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- What\u2019s the area does the middle price range fall into?
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- What\u2019s the area of the price range that\u2019s towards the top?
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Let\u2019s take a look at a hypothetical value ladder...
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A REAL ESTATE VALUE LADDER
Let\u2019s say I look at the three price points inside the real estate category and I find that:
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- Super expensive = $10,000,000 houses
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- The middle = $1-2,000,000 houses
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- Down at the bottom = $100,000 - $300,000 price range.
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Now I have my market and the different price points that the industry is used to bearing...
Next, I look to see, \u201cHow frequently does the average real estate agent make a sale inside each of those categories?"
Based on what I discover, I can work out, \u201cHow much can I expect to make if I enter that market?
If you\u2019re sitting back thinking, "Oh crap, this is really, really simple." \xa0It is, but, \u201cMan, I'm shocked at the number of people that don't do this.\u201d
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They start selling some freaking knick knack and then ask, "How come I'm not making any money?"
I'm like:
Your funnel's great, your sales message is awesome, your offer is fantastic, but the industry you went into is not used to the price points that\u2019ll actually make a lifestyle for you.
I swear if someone tells me they're selling \u201cHomeopathic Life Coaching\u201d to College Students, I'm gonna go nuts!
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This exercise helps you to determine whether or not you even want to enter a particular market.
Just because I could enter a market, it doesn't mean I should. If that market isn\u2019t a good fit for the lifestyle that I want, then I won\u2019t go there.
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I'm not trying to throw rocks here, but I am trying to get your freaking attention.
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A \u201cCHANGE YOUR WORLD\u201d VALUE LADDER
A quick story\u2026
There were some people that I\u2019ve been coaching who (and I'm not gonna say what it was because I don't want to embarrass anybody), it became very clear that their target customer was extremely broke people.
I'm not saying that poorer people don't need or deserve services, they do... I'm just saying that you need to make the business that changes your world before you can make your change the world business. Man, stack the cards in your favor.
Make sure you think through this before you actually dive in.
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Just because you could sell - \xa0doesn't mean that you should.
For example:
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When I was in elementary school, we had these things called Pogs, these little circle shaped colored cardboard things that you could play a little game with. \xa0
I don't know that anyone ever actually figured out what the game was, we all just had 'em.
Let\u2019s apply the same strategy that I applied to real estate to Pogs\u2026
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Well, hey, look at this cool (hypothetical) value ladder.
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These are the price points that the market is willing to bear to get their hands on some Pogs:
- Top Level = $100
- Middle Level = $25
- Down at the bottom, we can go super cheap - (we can get Pogs cheaper than everybody else) \xa0= $5
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We could auto-ship out to people for $10 every single month.
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I don't even know if you could find someone to give $100 for Pogs? But how much margin are you gonna pull on something like that?
You need to Hack The Value Ladder to see if it\u2019s even worth you entering a market. \xa0
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If you have a huge list, or you\u2019re an e-comm killer you may be able to pull off the Pog game\u2026 but for your average joe, Pogs are not going to be a change your world business - the margins are just to low!
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Now, let\u2019s shake this up a bit and look at a couple of different metrics I use to determine whether or not I should enter a market\u2026
GETTING REAL WITH PAPA LARSEN
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These are a few things that I look at when I'm building out a value ladder. For real, this is what I do. This is something that I look at before I:
- Enter a market
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- Think about traffic
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- Decide what my offer is going to be
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... before I even think through any of that stuff, what I'm thinking about is this:
Alright, so down at the bottom we're going to put "typical margins."
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- What are the typical margins I can expect at the high price level, the middle price level, and the lowest price level?
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- Next, up along the side, we're gonna go with "time to fulfill."
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The problem is that lot of you guys are making money, but you're spending too much time fulfilling.
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I'm not saying you need to get out of your business. I'm saying that you should start thinking about other ways to make a lot of money with margins - without a lot of time to fulfill.
If you\u2019re still in your 9-5; that's a lot of time to fulfill with not much profit margin, right? It's the lowest spot on the totem pole, right there.
So let\u2019s look at this more closely...
We fulfillment time on one side and typical margins across the bottom.
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When you build a value ladder, the higher up you go the more margins you have.
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Are there exceptions to the rule, "yes," but again, Steve Larsen is not about exceptions to the rule. \xa0I want to know, \u201cWhat are the rules that cause cash?\u201d
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I don't want to have to be constantly learning tricks to make money. What are the rules that make money? I can just follow those.
- At the very bottom price point #1 = \xa0very small margins when you're selling something like a book, or whatever your low-end thing is.
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- Towards the mid-price point, #2 = there are more margins - you're going higher up.
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- At the top #3 - there\u2019s even more margins going up - obviously, the place you wanna go is the very tippity top.
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But first, you need to answer the question, \u201cWho can you only sell to?\u201d
Typically, the people who will buy your high-end products are the people who are already your customers
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When you're entering a market and you take people from the red ocean and bring them out to make a blue ocean, you want to focus on the middle of the value ladder first.
However, the middle = lots of time to fulfill.
If you're like, Stephen, "Why on earth would we create something on purpose that actually takes lots of time to fulfill?" \xa0Follow me for a second, this is hacking the value ladder...
The middle of the value ladder typically produces good margins
Which means:
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- You can take the money and dump it back into ads.
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- You get good enough margins that you don't need your Facebook ads to be perfect on round one - 'cause they're not going to be.
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- You can get good enough margins that you can use the money to start building the business.
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When somebody enters a blue ocean by building a product on the bottom of the value ladder, I know they\u2019ve either got deep pockets, a giant list, are already an expert in something crazy... or they just like wasting money.
I have a hard time understanding why anybody would enter a blue ocean, or try to create one, with a low margin, low time to fulfill product the very bottom of the value ladder.
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It baffles me; I don't get it.
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MY GROWTH STRATEGY
The order I always build my value ladder in is:
- Middle
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- Top
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- Bottom
...Because as I'm building the middle of the value ladder there are enough margins for me to go and mess up a little bit and that's okay.
When I do get sales it\u2019s enough of a mid-tier price level, \xa0that I can a dump it back into ads and still be profitable.
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\xa0The machine works. The systems work. The numbers work.
BUILDING A MONEY MAKING BUSINESS
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- I build at the middle price point first because it proves out the main idea with the customer. We a customer from the red, pull them over to the blue, then prove out the main idea with the customer.
- Then I sell something more expensive to my existing buyers, NOT to those who are in the red ocean. This is the second place I like to go build - because it's a high price point and ironically, less time to fulfill than the middle.
- Finally, down at the bottom, when I start running out of customers, I start building break even ways to fuel the two top tiers.
- Down at the very bottom, before these three steps in the value ladder, that's where I have my content.
I take my content very seriously. I consider myself to be in the content business. It\u2019s like my identity.
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I am a content machine... and then I am Steve Larsen.
I think it was Gary Vee that said that the first time I heard it.
I build content, and that fuels the different steps in my value ladder. I'm NEVER not going to publish. I will be publishing for the rest of my life.
Let\u2019s break it down...
- The goal of the content is just to build a Relationship - that's it.
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- In the middle, the whole point is Acquisition - all I'm trying to do it acquire customers.
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- Next up is \xa0Ascension.
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- The next step is Monetization - I'm selling my existing buyers more expensive solutions.
What I'm typically looking at as I'm building out the offers that go inside each one of these tiers, is how to deliver the offer that I'm promising.
If the job on my sales message is to give a cool promise, then the job of my offer is just to fulfill on the promise. The roles are not interchangeable; you cannot reverse them.
That's the reason why when someone has a cool product, but it's not selling... the problem is, they didn't make a sales message - of course, it's not selling.
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- The role of the offer is to fulfill, not sell.
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- The role of the sales message is to make a new promise, not fulfill.
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I just wanted to teach you what I'm looking at when I'm coaching people.
There are a lot of frameworks running through my mind when I start looking at peoples stuff.
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I'm like, "Yes, no, good, bad, wrong order, look over here, don't look over there." You know what I mean?
So that\u2019s how I Hack The Value Ladder \xa0in order to:
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- Discover what markets to go into
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- The order I build my value ladder - so I can build my business at the same time
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- I inflate a blue ocean and put the scaffolding in to win.
However, what I find is that when somebody reads the book DotCom Secrets, their natural inclination is to start at the very bottom and build a break-even tripwire funnel. They're sexy, they're cool, I totally get it.
Ironically enough, they\u2019re more work than any of these at the top. Typically, they take so much more time to build, but not that much more time to fulfill after the sale.
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\u2026 Now, a final bit of Papa Larsen Love, \xa0I want to show you why undercharging my actually be damaging your value ladder and your business, and what to do about it\u2026
DFY - DWY - DIY
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You'd be shocked how many people in Russell's inner circle have never read Expert Secrets or DotCom Secrets. It shocked me like crazy. I thought they were joking, and I started laughing openly once at a Mastermind.
You have to understand that a lot of these people, they're successful business owners, a lot of them don't have time to go through the next book, they just want the "done for you" solution. So when you\u2019re looking at services:
- At the bottom, we have the "do it yourself" solution - DIY
- In the middle is the "done with you" solution - DWY
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- Then at the very tippity top, we have the "done for you\u201d solution - DFY
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I\u2019m gonna tell you something that might shock you\u2026
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There's an individual that I buy services from who is an absolute killer, but I was blown away at how freaking cheap their services were.
I thought at least that I was going to be charged at least five times more than the person said they were going to charge me. I was like, "What?"
This has happened to me multiple times. Guys, stop selling your "done with you" services at "do it yourself prices." Okay? Cut it out. You're actually hurting yourself.
I actually lost a little faith in the person's ability to fulfill and deliver to me. I actually refused to pay the cheaper price.
I was like, "There's no way I'm gonna pay you that much." They were like, "No, no, it's totally fine, totally fine." I was like, "It's not fine." I was like, "You charge all of your clients this much money? That's pennies, that's absolutely nothing."
If you\u2019re reading this, you're probably already better than the majority of that market at what you do.
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Stop selling your stuff at stupid, dumb low prices just 'cause you're afraid and you have a price aversion.
- Your sales message is good enough to sell
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- Your offer is good enough to fulfill
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- Your funnel is good enough to deliver
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BUT you're NOT making money because you're selling \u201cdone for you\u201d services down at \u201cdo it yourself\u201d prices. That's exactly what this person was doing.
It was almost nothing. I was almost embarrassed. I actually felt like I was in the wrong place. I actually refused to even take this person\u2019s services on until we 4X\u2019d the price. That's a true story.
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We actually didn't even decide to do business with this person until they 4X'd their price and then it was just like, tolerable enough compared to all the other services and, I mean I have a lot of agencies working for me.
Even Colton walked over to the camera, "Look, do you know how hard it would be for Stephen to do this on his own? There's no way. Come on, it's worth way more. Are you serious?"
It was an insanely low price. Done for you services at do it yourself price.\u201d
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I actually felt embarrassed for the person at how shocked they were about what I was saying. And I don't want you guys to go through that.
... And what I'm trying to get you guys to understand is:
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- Just because you can sell something, doesn't mean you should
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- What the order you're going to enter your blue ocean in
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- What are the historical price points that your market is used to bearing... and how can you enter in near the middle - a little bit more expensive.
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Be premium, but within the expectation that people already have at those of price points.
Russell told me that when he started selling and doing all this mastermind stuff, the accepted market price point for a year-long mastermind was five grand.
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Russell's Mastermind is 50 grand now, and he's a part of where he pays 100 grand a year\u2026 but that wasn\u2019t possible six or seven years ago.
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The historical price points of the market could not bear those levels.
So if you don't know what your markets price points are now, Hack The Value Ladder - there\u2019s already is one in existence inside the red ocean.
Understand what people are already used to paying so you don't have the embarrassment of someone going, "That cheap?"
... Because I will tell you, I felt like someone got me inside a cool Ferrari, I just went and test drove it, I was super excited about it...
Then I got out of the car, and there was a smug look on the salesman's face and they said, "Hey, we're going to give you this awesome Ferrari for only $2000!" You'd be like, \u201cWhat's wrong with it?\u201d
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When someone is too cheap, it doesn't feel like a deal. It feels like you're in jeopardy.
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Funnily enough, I felt more taken care of after spending more money
If you're like, "That sounds stupid. Stephen, you're dumb. Why didn't you get the discount?" You need to understand, it's not about the money at that point, it's about the value - and they're not the same thing.
You need to know that people are looking for that from you. I never do discounts, and you don\u2019t need to either.
So if you\u2019re undercharging, raise your prices. Just raise your prices!
- Understand the historical levels, then go a bit more premium
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- Understand that the order you're gonna attack the value ladder in is: #Done with you \xa0#Done for you # Do it yourself
...And when you do that, my friend, Welcome to the Capitalist Pig Game - \xa0it\u2019s so much easier to do it that way.
Until Next Time - Welcome to the Capitalist Pig Foundation!
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