Incrementalism doesn’t kill companies. Incremental solutions do.

Every other day, aspiring technology entrepreneurs are pitching their Uber of X, Airbnb of Y or Tinder of Z idea. But many of these ideas are, at best, small improvements to existing value propositions — they’re incremental solutions. It’s okay to begin your entrepreneurial journey with small box ideas, but unless you have a product that is significantly better than existing ones, or more importantly, a product the market values enough to switch over and pay for, your chances of success are slim.

Incrementalism kills companies. — David S. Kidder, The Startup Playbook.

In the tech world, incrementalism is widely understood as a method that focuses on small, manageable improvements to existing business models or value propositions. This method, also known as the Japanese kaizen system of continuous incremental improvement, was pioneered by Toyota in the 1970s. Proponents of incrementalism (or ‘iterative progress’) say it allows for “granular appreciation for the cumulative realities of true progress and its subsequent achievement”. If a big plan or project is broken down into small steps, it is less likely to overwhelm you. This is because you’re not just inching towards the finish line (‘the end goal’); you’re achieving small goals along the way and thereby maintain an ongoing sense of accomplishment.

Incrementalism, as a methodology, also allows you to identify what resonates best with your potential customers and develop your product accordingly. This is what Steve Blank’s lean startup methodology is all about. If you build a product based on assumptions about what the market needs or wants, you may end up with something that nobody wants and no money left over to do anything about it. In fact, a CB Insights study found that 42% of startups fail due to “no market need”.

Many of the world’s most progressive thinkers, however, are fundamentally against incrementalism, saying it’s the death knell of a technology company. Peter Thiel, who co-founded PayPal and was an early investor in Facebook, believes incrementalism hinders the creation of products and services that are truly bold and impactful.

Good read: Zero to One by Peter Thiel

Thiel seems to think lean is “code for unplanned”. In his book “Zero to One”, he expresses his dislike for the lean methodology because he mistakenly believes testing hypotheses isn’t a planned process and that working in incremental iterations to find out what’s valuable to customers leads to, at best, the creation of incremental or ‘half-baked’ solutions. In Thiel’s view, the lean method lowers the cost of failure, but also lowers the chances of creating something that is impactful.

Myths about Lean. Excerpt from Peter Thiel’s ‘Zero to One’ book.

The argument Thiel puts forth against incrementalism seems like it conflicts with Blank’s famous lean methodology, which Dan Kaplan, a growth marketer, describes as “the closest thing to a scientific approach to startup creation that we have”. But they’re actually not opposing views. People who are for incrementalism are right. But people who are against incrementalism are also right. The thing is they’re right in different contexts.

The Lean Startup is a ground-level method for entrepreneurs looking to build a product that fits the needs and desires of the market. The formula of writing a business plan, pitching it to investors, assembling a team, developing a product and selling it to customers is now considered ineffective and outdated. The Lean Startup method, which is only a few years old, allows entrepreneurs to improve their value proposition and business model effectively and cost-efficiently. It’s a major shift from the traditional overzealous moderation-be-damned method of developing a product. According to Blank, the lean startup methodology “favors experimentation over elaborate planning, customer feedback over intuition and iterative design over traditional ‘big design up front’ development’.”

If a startup is, as Blank defines it, a temporary organisation looking for a repeatable and scalable business model, then applying an incrementalist, fail-fast, learn-constantly approach makes a lot of sense, especially if you zoom into an early-stage company and take the short-term view. By this, I mean in the context of product development. In this context, Yevgeniy Brikman describes incrementalism as the “[breaking] up work in small, isolated steps, each of which has value by itself” as opposed to rewriting your code on a new stack.

“When you throw away old code, you’re throwing away years of learning and bug fixes. While doing a rewrite, you’ll end up repeating many of the same mistakes, plus lots of new ones. You’ll realize that rewriting the code on the shiny new technology is only a tiny fraction of the problem, and most of your time will instead be spent retraining team members on the new way of doing things, convincing them that the new way is better, updating documentation, dealing with data migration issues, integrating the technology into the build and deploy system, setting up monitoring, and figuring out how to debug the new technology.” — Yevgeniy Brikman, Hello, Startup: A Programmer’s Guide to Building Products, Technologies and Teams.

The alternative is you end up spending all your development budget on a mobile app you thought would be successful, only to find out the market sees no value in it.

Thiel’s logic makes sense when you zoom out of a company and take the long-term view. If you focus less on development and more on impact — as in, building a company that has a profound impact on the lives of consumers and solves some of the world’s most pressing problems — then incrementalism seems inadequate in light of the great challenges humanity faces today like poverty and climate change.

There is a crucial difference between Blank and Thiel. What Blank offers is a methodology. Whereas what Thiel offers is a philosophy. Yes, you should think big. But you can’t build something big, bold and beautiful overnight. (Even Tesla’s Elon Musk isn’t expecting to change consumer behaviour overnight). If you combine Blank and Thiel’s logic, what you’ll have is something that makes more sense: Think big. Start small. Adapt. Continue.

Entrepreneurs need to invest their time and energy in identifying the most brilliant technologies and the most capital-efficient way to commercialise these technologies to solve humanity’s most vexing problems. While product development needs to progress incrementally, the end-game or the vision needs to be much bigger. That’s perhaps where the problem lies in Australia; most entrepreneurs aren’t thinking big enough.

Incremental solutions

There are many entrepreneurs in Australia attempting to build entire companies around what are, essentially, incremental improvements (or just small changes) to existing value propositions. It might be a music streaming service like Spotify or a social network like Facebook but with one or two added (or eliminated) features. These are incremental solutions, but not necessarily the result of the incremental development methodology. A majority of the companies building products that are only slightly different to the ones the market is accustomed to have short lifespans because, at most, they’re only slightly better than what already exists.

“Small incremental improvements and slightly better features rarely make for good startup ideas.” — Yevgeniy Brikman, Hello, Startup.

This is not to imply there’s no room for competition. Competition is needed. It sets the benchmark. It defines the ranking by default. There may be 10 products that are very similar, but only one (at least in most cases) will top the ranks.

People like Thiel, Larry Page (Co-Founder of Google) and David Kidder (author of “The Startup Playbook”), believe entrepreneurs need to come to the market with something that is 10 times better than what already exists or else there is no competition. This is the 10x mindset.

A product or service that is only marginally better than what exists won’t compel consumers (at least, not enough to have a viable business) to switch over — they’re already accustomed to, and getting value from, an existing product. (It’s worth noting that if it’s a company like Microsoft or Apple launching its own music streaming service as complementary to their core value proposition, then a small consumer uptake isn’t going to be detrimental to the business — after all, it’s not one of their core products. The problem is when entrepreneurs attempt to build entire companies around a product that isn’t significantly better than what already exists. At least, that’s what the tech visionaries preach.).

“The most important aspect of a product is its differentiators: those features that separate it from all the other alternatives. People often refer to differentiators as the “competitive advantage”, but that phrase makes it seem like any advantage, no matter how marginal, is enough. It’s not. Your differentiators need to be much, much better than the competition. You’re not looking for a 10% improvement, but a 10x improvement. Anything less, and most customers simply won’t think it’s worth the effort to switch.” — Yevgeniy Brikman, Hello, Startup.

The biggest problem with the 10x argument is that it’s very difficult to measure how a product is 10 times better than what already exists. What’s the unit of measurement? What does it mean for a product to be 10 times more valuable? Does it have 10 times the number of features? Does it save consumers 10 times the amount of time they would spend on a task using an existing a product? Is it 10 times cheaper?

‘10x’ is really just a philosophy. It means your product can’t be slightly (or incrementally) better. It needs to be significantly and noticeably better.

The argument of “build something that is 10 times better than existing solutions or it will fail” can also be disputed with examples like marketplace businesses — i.e. businesses that connect two (or more) different audiences who would otherwise have difficulty finding each other. There are many marketplaces that coexist nicely like Upwork, Freelancer and Fiverr. Conceptually, they’re not that different — they all connect individuals and businesses to freelancers worldwide — but they offer different user experiences, have different growth strategies and most likely have different long-term goals.

Same goes for job search platforms such as Seek, CareerOne, Indeed and so forth. If you came to the market with yet another platform that connects businesses to freelancers or yet another platform that connects job seekers to employers, you would face a lot of scepticism and resistance until you have, and can articulate, a clear point-of-differentiation.

Take OneShift as an example. Founded by Sydney-based entrepreneur Gen George, OneShift focuses on connecting employers to casual workers or people looking for flexible work. If a restaurant is in urgent need of a waiter or bartender for a few shifts, then it can post a job on OneShift at a significantly cheaper price ($70+) than posting on a platform like Seek ($290+) and hire someone fairly quickly. OneShift tackles employment from a different angle; its solution is significantly more efficient and cost-effective for businesses that need casual workers on short notice. Unsurprisingly, it has resonated well with businesses in the retail and hospitality industries. In a way, OneShift is an example of niche incrementalism, but with a much bigger vision.

In Australia, there’s certainly a lot of niche incrementalism; entrepreneurs are solving niche problems — whether it’s a job platform for university students or a cloud accounting solution designed specifically for solicitors. Niche incrementalism isn’t actually a bad thing. In fact, when you take a closer look at some of today’s most successful technology companies, you’ll realise that they grew by dominating small customer segments, one at a time. PayPal focused on eBay users before dominating the ecommerce world, Facebook targeted students at Harvard University before expanding to other colleges and user segments, and Airbnb launched in San Francisco before entering other cities.

The biggest problem in Australia is that there’s a lot of superficial creativity. An alarming number of ‘entrepreneurs’ are building apps that are incrementally better than what exists thinking it’s a way to generate passive income. Others just want to join the startup club and are creating ‘me too’ products. People are focusing more on the ‘D’ than the ‘R’ in R&D (Research & Development). Most of us are being incrementally creative; very few of us are imagining the unimaginable and transforming the unimaginable into reality. There aren’t as many Australian startups creating new markets; very few have inbuilt network effects and the potential to become monopolies in their category.

This could be because a lot of local entrepreneurs don’t have a global mindset. Blank’s article, ‘Born Global or Die Local — Building a Regional Startup Playbook’, reflects on the attitudes of Australian SportsTech entrepreneurs who, he found, were more focused on local dominance than achieving global scale. From his interactions with Melbourne-based founders, he realised that “most of the founders who said they wanted to grow big hadn’t given much thought about how they would go about building size and scale.”

“The biggest mistake for most of these startups was not understanding that optimizing their business model for the 24 million people in the Australian market would not prepare them for the size and scale they needed to get to big,” Blank writes. “Instead of beginning with just a focus on Australia, these startups needed to use the business model canvas and articulate which of their hypotheses should be tested locally and what would require getting on an airplane to test by watching someone’s pupils dilate face-to-face.”

Perhaps a good portion of the 90 percent of startups that fail aren’t thinking big or long-term; they’re not exploring uncharted territory.

What’s interesting though is the fact that Australia excels at research — we are far above the OECD average when it comes to publishing academic papers. We’re just not using research to guide development as often. The general consensus is that Australia fails at commercialisation — we are one of the worst in the OECD when it comes to converting innovation into jobs and income. It would be great to see more startups translate discoveries from research laboratories into valuable commercial products. After all, Australian taxpayers are funding world-class research — $9 billion was spent on research in 2014 alone — but many of the discoveries emerging from that research aren’t being commercialised. In fact, less than 1.5 percent of the money invested in research was spent on commercialisation in 2014.

Some say it’s hard to commercialise truly cutting-edge ideas (‘moonshots’) in Australia because it’s costly and local investors have a low-risk appetite. According to a StartupSmart article, 99designs’ CEO Patrick Llewellyn and angel investor Alan Jones said moonshots are almost impossible to fund locally. John Dyson, investment principal at Starfish Ventures and OneVentures CEO Michelle Deaker contributed to the discussion, saying moonshots are too dangerous for Australian investors to back. This is understandable as bringing new products to unproven markets is inherently risky; and it’s exponentially riskier when you’re pursuingmoonshot ideas.

“I don’t think they [Australian investors] are closed to the idea but the statistics show that only one in about 1,000 make it, so unless you have a strong domain or market understanding, or the entrepreneur can prove they do, it’s a tough investment,” Deaker told StartupSmart.

Blackbird Ventures’ Co-Founder and Managing Director Niki Scevak, however, took to Twitter to criticise this view, saying VC firms like Blackbird are more than happy to invest in breakthrough ideas. It’s just that not many entrepreneurs are knocking on investors’ doors with such ideas.

The role of education

The real challenge will be shifting our mindsets. Professor Muhammad Yunnus, a Bangladeshi social entrepreneur who won a Nobel Peace Prize for founding the Grameen Bank and pioneering the concepts of microcredit and microfinance, said society has progressed in ways that suppressed the entrepreneurial nature inherent within us all. He believes many centuries ago, being an entrepreneur was not a choice, but a survival mechanism — you wouldn’t have survived the harsh realities of the world if you weren’t entrepreneurial.

In How Google Works, Page points out how difficult it is to spark ambition among people, to inspire them to imagine the unimaginable: “It turns out most people haven’t been educated in this kind of moonshot thinking.” But the foundation for moonshot ideas is ‘autonomy of thought’. Page says Google applies “autonomy of thought to almost everything” it does, describing this autonomy as “the freedom to think from first principles and real-world physics rather than having to accept the prevailing ‘wisdom’.” In 2013, he criticised the education system in the US for not training students to think up innovative solutions to real-world problems.

“It’s not easy coming up with moon shots. And we’re not teaching people how to identify those difficult projects. Where would I go to school to learn what kind of technological programs I should work on? You’d probably need a pretty broad technical education and some knowledge about organization and entrepreneurship. There’s no degree for that. Our system trains people in specialized ways, but not pick the right projects to make a broad technological impact.” — Larry Page, ‘Google’s Larry Page on Why Moon Shots Matter’, Wired.

Education systems have traditionally taught people how to become small cogs in big hierarchical machines, to be complacent, not how to found, build and grow companies. We are, however, in the very early stages of changing the Australian education system for the better — for example, the government is introducing initiatives to equip students and teachers with the skills necessary to thrive in the digital age — i.e. STEM (Science, Technology, Engineering and Maths) skills. There are certainly new courses and programmes popping up in universities to help create the entrepreneurs of tomorrow.

If moonshots are difficult to come up with, difficult to fund and difficult to commercialise in Australia, then the government’s newfound focus on innovation will hopefully help in some small way in the upcoming years (if Turnbull maintains his Prime Ministership). The Turnbull government is well aware of the tech sector’s potential to become Australia’s economic powerhouse and is taking steps to facilitate an #IdeasBoom through improved policy, easier access to funding, better education and other initiatives.

Nothing is entirely new

The important thing to remember is that building some truly bold and impactful doesn’t need to be based on entirely new technical discoveries. It can be a significant improvement to an existing idea. It can be a unique mix of existing ideas. This is where Thiel’s views and the 10x mindset come in handy. When you look at ‘disruptive’ companies like Google, Facebook and Tesla, none came to the market with anything new. There were at least a dozen search engines before Google; social media platforms like Myspace, Friendster and Bebo were alive and well before Facebook took over; and Tesla certainly didn’t invent the first electric vehicle.

In fact, Google, Facebook, Instagram, Twitter, Tesla and PayPal were all terrible ideas at the time of their conception … or were they? Have a read of how Michael Wolfe humorously puts it (via Quora):

Facebook — the world needs yet another social network a la Myspace or Friendster except several years late. We’ll only open it up to a few thousand overworked, anti-social Ivy Leaguers. Everyone else will then follow since Harvard students are so cool.
Google — we are building the world’s 20th search engine at a time when most of the others have been abandoned as being commoditized money losers. We’ll strip out all of the ad-supported news and portal features so you won’t be distracted from using the free search stuff.
PayPal — people will use their insecure AOL and Yahoo email addresses to pay each other real money, backed by a non-bank with a cute name run by 20-somethings.
Instagram — who needs Facebook? We got filters! That’s right, filters!
Tesla — instead of just building batteries and selling them to Detroit, we are going to build our own cars from scratch plus own the distribution network. We’ll start the company during a recession and the crashing of the clean tech industry.
SpaceX — if NASA can do it, so can we! It ain’t rocket science. Oh, it is.
Twitter — it is like email, SMS, or RSS. Except it only has 140 characters, doesn’t support images, can’t be made private, and will be used mostly by geeks at first, followed by Britney Spears and Charlie Sheen.
Read the full list of terrible but not-so-terrible ideas on Quora.

Google didn’t come to market with just another destined-to-be-doomed search engine. As search engines weren’t very popular in the 90s, there was room for Google to grow and truly differentiate itself. The market wasn’t saturated because many of the previous search engine companies launched and failed.

When you look closely at Google’s progression, it’s always been a forward-thinking company. In 1996, before Google was born, Page had a dream (literally) that people could download the entire web and just keep the links. This evolved into building a search engine that ranked pages based on “an objective measure of its citation importance that corresponds well with people’s subjective of importance” (Wired, January 17, 2013). Today, SEO (Search Engine Optimisation) is considered necessity for any company with a digital presence — and it all started with Google’s Pagerank system.

Then came Gmail in 2004, which gave users more than 100 times the storage offered by existing email providers. (4MB was the typical amount storage offered by email providers, whereas Google offered 1GB). It seemed like an unusual move for a search engine company to foray into the world of email. But today, Gmail is the second most popular email client with a 16% market share, following the Apple iPhone which has a 33% market share.

When Google acquired Android in 2005, people thought it was “nuts” to align the mobile industry around an open-source operating system. And before Google proved it was possible, people thought Google Maps was a far-fetched idea. (You want to map the entire world? You’re going to photograph every single street that exists?).

Google’s continuous investment in left-field ideas — for example, a contact lens that can detect blood sugar levels in people living with Diabetes or balloon-powered internet to provide connectivity in rural and remote areas — has been part of its strategy to continue to imagine the unimaginable — and certainly, to avoid the creation of incremental solutions.

“…incrementalism leads to irrelevance over time, especially in technology, because change tends to be revolutionary, not evolutionary. So you need to force yourself to place big bets on the future. It’s why we invest in areas that may seem wildly speculative , such as self-driving cars or a balloon-powered internet.” — Larry Page in How Google Works.

Additionally, Tesla did not invent the first electric vehicle. It did, however, invent one of the most in-demand range of electric vehicles in the world. Tesla received 325,000 pre-orders within 48 hours of announcing its latest vehicle model. It’s worth noting that these customers paid for a product that will be delivered in two to three years. Tesla has managed to identify and is benefiting from the passion of its early adopters (or ‘true innovators’). It’s worth noting that Elon Musk’s reputation and track record certainly played a part in generating excitement around Tesla.

Although Tesla didn’t come to market with the first ever environmentally-friendly vehicle, it did come to market with a luxurious, hyper-connected, aerodynamic vehicle with the best ‘infotainment’ and autonomous features (like autonomous parking). Musk, who is the visionary behind Tesla, is well-aware that the issue of climate change is not enough to compel drivers to switch to environmentally-friendly cars. The cars need to be appealing in other ways.

Tesla also entered a very slow-moving industry. Automotive brands tend to introduce new models every year that are only incrementally better than previous models. Tesla introduced models that were more advanced than existing ones in both functionality and design; and the company is advancing at a pace that’s unprecedented in the automotive industry. In fact, Musk has now inspired other automotive brands to follow suit. Luxury car brand Porsche unveiled the Porsche Electric Mission E last year, which Wired said was poised to “dethrone” Tesla’s Model S.

Porsche Mission E vs. Telsa Model S

While Tesla vehicles are in hot demand at the moment, Musk’s vision is too big for the average consumer. For Tesla to be successful in its mission to accelerate the world’s transition to sustainable energy and self-driving cars, it needs to achieve critical mass. Musk knows he can’t change the world overnight, not when it requires a major shift in consumer behaviour. This is why he’s unlocking features incrementally. But they’re not small, insignificant features — they’re the kind of features that most consumers wouldn’t have imagined possible like autonomous parking. If other automotive brands actually do catch up to Tesla, Musk wins. Consumers don’t have to buy Tesla vehicles to contribute to the future health of our environment. They can purchase electric vehicles from other brands.

Incrementalism as a methodology, therefore, does not necessarily lead to incremental solutions. Incrementalism is about taking small deliberate steps towards realising big, ambitious goals. This is the approach Musk is taking.

Incrementalism is not problematic as a methodology. It’s problematic as a goal. Thiel has a compelling argument about thinking big, but not a compelling argument against incrementalism as a methodology. Added to that, Zero to One doesn’t actually offer a methodology. It’s inspiring, but that’s about it.

Are moonshot ideas best executed by startups?

According to Brian Solis, principal analyst at Altimeter Group and award-winning author of X, entrepreneurs often confuse innovation with incrementalism. He says the difference between incrementalism and innovation is that the former improves something iteratively, whereas the latter introduces the market to something new. Even Apple, the creator of the iPhone which forever changed the way we live their lives, has been guilty of incrementalism in the last few years.

Disruption, a popular term in the world of startups, is the result of intentionally setting out to change norms and consumer behaviour. In Solis’ view, disruption changes an entire ecosystem; the world adapts to you, rather than you adapting to the world.

The theory of disruptive innovation was invented by Harvard Professor Dr. Clayton Christensen in his book “The Innovator’s Dilemma”. He uses the term to describe innovations that create new markets of supply and demand by discovering new categories of customers.

Good read: The Innovator’s Dilemma by Dr Clayton Christensen

He points out the difference between disruptive innovation and sustaining innovation, which incrementally improves existing products, saying that established companies have to face the difficult decision of choosing between holding onto an existing market by doing the same thing a bit better, or capturing new markets by embracing new technologies and adopting new business models. Often discussions about disruptive innovations tend to overlook the importance of sustaining innovation — examples of sustaining innovations include faster processors, slimmer smartphones, memory cards with greater storage capacity, longer-lasting batteries, and so forth.

But when it comes to disruptive innovation, they’re best executed by startups. While big companies probably have the budget to invest in left-field ideas, implementing and maintaining a culture of innovation is difficult. This is because big company executives are focusing on short-term goals like meeting their monthly or quarterly growth targets, according to Dr Dennis Nelson, an entrepreneurial R&D leader in the OTC pharmaceutical space and Managing Director at Philosophy IB. Startups, on the other hand, aren’t bound by the same responsibilities in the early stages.

“Most (large) companies are preoccupied with meeting growth targets, especially short term growth targets. These short term growth targets can result in a bias where short term projects are favored over longer term projects even if the longer term projects have a considerably larger upside. Startups or small companies are not bound by the same constraints and realize that their only strategy to survive and grow is to launch a disruptive innovation.” — Dr Dennis Nelson, ‘The Decline of Innovation and The Resurgence of Incrementalism’, Innovation Crescendo.

How do you train your mind to think big?

Make yourself uncomfortable.

This means socialising with people you wouldn’t typically socialise with. If you’re looking for the next new idea, talk to people outside your networks. If you’re constantly surrounded by like-minded people, you won’t be exposed to new ways of thinking. You won’t be able to identify new problems. (This is the problem with Facebook. Your experience is so personalised that you can’t expand your knowledge unless you actively seek it; and today, people expect information to be delivered to them.).

By the same logic, travel to places you wouldn’t typically travel to; attend events you wouldn’t typically attend (like different kinds of meetups); do activities you wouldn’t typically do.

Focus on the emotional needs of customers.

Don’t focus on features; focus on what customers feel. What frustrates them in their everyday lives?

By understanding customer emotions, you’ll be able to build habit-forming products. In his book Hooked, Nir Eyal explains that products can become habitual when associated with a particular emotional trigger — e.g. boredom, loneliness, anger — and how not using the product when the trigger is present creates a craving that turns into actual pain if it’s not satisfied.

In his Medium article, “The Future of Design is Emotional“, Daniel Eckler, founder of Piccsy, says “emotional bonds (or lack thereof), are the invisible currency of contemporary life”.

“…if we take a moment to think about our belongings, we all have a handful of items that aren’t particularly useful or pleasing to the eye. Why have we kept them? Because we’ve formed a connection, and they’re meaningful in some way: the birthday gift from our best friend, the movie ticket stub from the first date with our significant other. These connections affect us subconsciously, breathing life into otherwise inanimate objects.” — Daniel Eckler

Understanding the emotional needs of customers will help you unlock large opportunities. Added to that, customer needs are always changing. Take internet speeds as an example. Now we need internet speeds that would have been mind-blowing a decade ago.

Constantly ask ‘what if?’

Reimagining the future is about asking ‘what if?’ What if perfect vision isn’t perfect? Why accept 20/20 vision when we can have superhuman vision?

What if we could hear people through walls? What technology can make that happen?

Note: ‘What if’ is not the same as ‘if only’. The former looks ahead and will allow you to create something truly bold and impactful. The latter laments the past and present and will allow you to fix an existing problem or improve an existing solution.

This article originally appeared on the Appster blog.

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