Recently John Oliver who has his own show on HBO did a video on multilevel marketing and network marketing. It prompted hundreds of emails and messages sent our way asking, “Pat, what do you think about what John Oliver said about network marketing?” So in this video and article, I give you the real truth about network marketing.
Note: This article is an excerpt of the free eBook, The Real Truth About Network Marketing.
One thing I love about comedians is that they can, for example, talk about how bad Republicans are one week and then the next week talk about how bad Democrats are. This is one thing I love about Jon Stewart. Even though he leans to the left, he’s willing to give both sides. They say things in a way that are funny and they can get away with it because of the end of the day they can say, “I’m just a comedian! I didn’t mean anything by it.” So it’s cool.
I was a bit disappointed with how John Oliver handled this topic because while he’s a great comedian, he only gave one side of the story when it comes to network marketing. So today I want to completely break it down and cover the following six things with you about network marketing:
- What is Network Marketing?
- Types of MLM Products
- Common Criticisms of Network Marketing
- Different Types of Network Marketing Compensation Plans
- The Benefits of Joining a Network Marketing Company
- What to Look for in a Network Marketing Company
My Personal Experience with Network Marketing
But first, let me share with you my personal experience with network marketing.
I used to work at Bally Total Fitness many years ago. I was a 20-year-old and had just recently gotten out of the Army. MLMers and network marketers often love to target gym salesmen because people who work at the gym know everybody. Everyone comes to the gym and the best guys at the gym are connected with everybody.
So everyone tried to recruit me, and everybody else to a network marketing company. So eventually, one of my friends gave me a tool commonly used at the time - a VHS video to watch. Up to that point, I had no idea what network marketing was. I had just gotten out of the Army, and in the Army one of our sergeants, that was making $60,000 a year as a master sergeant was making $150,000 in a legal network marketing company. So I knew there was something there, but I didn't fully know about it.
I was Ticked Off
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#1: What is Network Marketing?
So what is network marketing? Network marketing is not an industry. Direct marketing is not an industry. Even MLM, multilevel marketing is not an industry. It's a philosophy of marketing. That's all it is. It's a philosophy of marketing.
And what is marketing? Marketing is a certain strategy you use to get the customer's attention so that he eventually ends up buying your product. That is all network marketing is.
Let me explain. There are about 150 different ways you can market your product. I'm just going to give you an example of some of them here.
Direct marketing is for me to sell my product by going directly to the consumer, or going directly to the business. With direct marketing, I have a product; let me show it to you. Will you buy it? If yes, you pay me and in exchange for money, I give you the product, and I make a profit off the sale.
Next you have email marketing. For many years people that did email marketing were called the biggest con artists because they would say things like, "This is an elite thing that only seven people will be a part of, and you have an opportunity to be part of the seven." And people would respond, "Oh my gosh, I've got to be part of it." A lot of people called people that did this con artists, but there's a creative part to it and it can be very effective.
Some do telemarketing. Telemarketing is a philosophy of marketing where people in a call center make sales calls and some people buy. It's effective for some people because if you throw enough against the wall, some of it sticks.
Another one is affiliate marketing. What's affiliate marketing? Affiliate marketing is hey, let us put this on your website. If somebody clicks on it, we'll give you $3. If somebody buys the product, we'll give you $25."
Another one is network marketing. What is network marketing? I am marketing my product to who? To my network. That's all it is. I am marketing my product to my network. That's network marketing.
An example of network marketing is when back in the day, ING Direct said, "If you help someone else open up an ING Direct account, we'll give you $25."
But, multi-level marketing says the following. "If you find somebody else who refers ING and they open up an account, we'll pay him $25, and we'll pay you $5." Now it becomes a level. So it's multilevel. We'll pay two generations, that's where the level comes in.
Then you have guerrilla marketing. An example of guerrilla marketing is when you had guys that came out with a CD and they marketed it in the streets, just hitting a ton of people at the same time. Some call this a very con and deceptive way of doing it, but it's effective. And many major hip hop people and movie people in the world that you respect started with guerrilla marketing.
Next is behavioral marketing. Sometimes people say, "Hey, the weirdest thing happened today. I went on this website just two days ago to buy furniture, and today every website I go to is advertising the same furniture to me. There's something weird going on." No, it's called behavioral marketing. Some people feel this is a little deceptive, but it's just marketing! And people buy the product because they simply see your fingerprints of where you went on the web and they advertise accordingly.
Next is digital marketing. What's digital marketing? Social media. It's very, very effective. Now some people say, "I'm sick and tired of seeing ads on social media. Every time I watch a video, this guy keeps coming up." But this is digital marketing and it works.
Celebrity Marketing is when a celebrity or athlete says, "Hey, I used this product and it changed my life!" MJ Hanes, LeBron, and Shaq are examples.
Then you have cross marketing. Cross marketing is when, for example, a real estate agent teams up with accountants. It's when you team up with someone and cross market products.
Trade Show Marketing
Next, trade show marketing. Trade shows are all some people talk about. And others say, "I would never do a trade show. It's so annoying." But there are many successful trade show marketers.
Then you have T.V. marketing. A lot of people do T.V. advertisement. It's some of the most manipulative marketing tactics. You know why? It gives people the impressions such as, "If you drink this beer you're going to get laid." Or, "Take this pill and your erections may last for the rest of your life!" People watching that may say, "Oh my gosh! Give me one of those pills! I want an erection that lasts a lifetime." Give me a break! This is manipulative, but it works.
And then you have radio. Nowadays I think there are only three people that listen to the radio. I think the best people in radio marketing are those that sell radio. In 2009, 2010, I spent $100,000 on radio and it didn't work. Radio's not what it used to be, but some people still do radio marketing.
Why Companies Do Network Marketing
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By the way, a lot of people say that network marketing and multilevel marketing are pyramid schemes. And every time somebody says, "pyramid scheme" they sound uneducated, so I'm going to explain it so people understand it and stop using it incorrectly.
In a pyramid scheme, a product doesn't exist. There's a reason why Amway and Herbalife haven't gone out of business yet. Beckham wears an Herbalife shirt and the Orlando Magic play in the Amway arena. There's a reason for that. It's not accidental. If they were pyramid schemes, they would be closed down.
I remember when I worked at Bally's a guy showed me this thing. He said, "Hey, you pay $500 to me. I keep $200 of it, $100 of it goes to the guy above me, and $100 goes above me. But you go out there and get five other people that pay $500, and they get five other people, and then you get five other people, you're going to make $100,000 a month." I said, "What's the product?" He said, "There is no product! That's the great thing about it. There is no product!"
He was a con artist. Six months later he went to prison, which is exactly what needs to happen with people who run pyramid schemes.
Another common thing that people say about network marketing or MLM is that it's a Ponzi scheme. But most people don't even know the history of Ponzi schemes.
Ponzi scheme came from an Italian businessman named Charles Ponzi. He was a con artist that did business in the U.S. and Canada. He went to people and said, "If you give me $100, I'll return it to you with $150 in 60 days, and I'll give you $200 within 90 days". He was the first original Bernie Madoff type of guy, who made I think $10 million during that time, which is a lot of money.
So people may say, "This is a Ponzi scheme," but in a Ponzi scheme, there is no product. Money just moves around. And when money moves, with no product, you go straight to prison. And people who do this belong in prison for trying to rip people off.
And by the way, if capitalism ever gets a bad name because people try to win in the game of capitalism with shortcuts, and they try to hurt people, those people belong in prison.
#2: Types of MLM Products
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#3: Common Criticisms of Network Marketing
Now with that being said, let me get into a few things when you think about network marketing that gives network marketing a bad rep.
People that Join Everything
One is when people join everything. It's extremely annoying. No one likes it. You lose friends, because every day you want to sell a new product. Just so you know, people get tired of it.
I experienced this when I was 20 years old. There was a period of time when my friends said, "I don't want to have anything to do with this." That's why I said that I would never touch anything again that has anything to do with network marketing.
But there are a lot of people that want to join anything and everything. They tell people, "Hey, you should join this! I found this new thing!" It's too much. It's like you're prostituting products. There's a lot of that in network marketing and that's a turn off.
Something New to Sell Every Single Month
The second one is when they have something new to sell every single month. This is similar to the other one that I told you about. One month they're selling you some travel product. The next month it's a Tahitian Noni that's going to change your life. The next day it's a water that if you drink it will make you younger. Every day there's something new to sell.
Inventory in Garage
Third, inventory in the garage. This is very problematic. Here's why. People end up with inventory in the garage when they've been oversold a product that they can't afford and shouldn't buy. Don't tell people, "Hey, come buy $5,000 worth of products."
Why are you doing that? The person doesn't need it and if they don't have a track record of selling a lot of products, they shouldn't do it.
People need to like and use the product and if they want to buy more products, you can show them other elements of the product. Otherwise people spend $5,000 on products that they end up selling on eBay for $600. That's a rip off, and you shouldn't do that to people.
Get Rich Quick Message
Next is get rich quick. This is one that's very annoying to most people. It's the idea that you'll be a millionaire in no time. People don't like that. It's deceptive and it's not something you ought to be doing.
Misrepresentation is when you say things like, "This is the cure to cancer" or claim to cure aging, make people happy, improve your sex life, and give you more energy.
Misrepresentation happens way too much in the world of network marketing and it gives a bad rep.
More Focus on Compensation Plan Than on the Product
Here's the other one that's very concerning. When a guy comes up to you and sells you the company like this, "Hey, who cares what the product is? We have the best compensation plan." Listen. Run away as far as possible. When they sell compensation plan first, product second, I have a problem. When they sell compensation plan first and product second, we have a very, very big problem. It's got to be product first, then compensation plan. You first got to buy into the product.
But there are a lot of people that sell compensation plan first. As a matter of fact, you'll see a lot of videos and you'll see a lot of people present and they'll say, "We have this. . . " and you still don't know what the product is. "Here's how much money was made with this." No, no, no. It's not a good approach and it gives the industry a bad rep.
Too Many Fake Scripts
Next, too many fake scripts. Look, I remember one of the reasons why I didn't like going to church, one of the reasons why I was an Atheist for 25 years. Let me tell you why I was an Atheist for 25 years. I was an Atheist and an agnostic, it would always change. And I wouldn't like going to church. Here's why. People had the best scripts in the world. "Oh praise the Lord, my brother! God bless you! You know John 3:16? Oh my gosh!" And I remember this one guy one time pulled me aside and he says, there's nothing more annoying than a Christian man who's learned the script but never lives it themselves.
And in the world of business and especially network marketing, there are people that know the script. It sounds the same, but there's no results and nothing going on. It's too scripted without anything really happening in their lives. It's very obvious and people can read it.
No Real Product
Next, red flags to pay attention to. You know I already told you about no real product. So there was a company called ZeekRewards. And I remember one guy came and met with me at Maggiano's. Very, very smart guy. He was a very open guy. Here's what he told me about ZekeRewards. He said, "Pat, I know this company's not going to last for another two years. But we can do this and maybe we can make a million dollars in the next six, 12 months.” I don't have the desire to do anything like that.
They ended up going out of business, but not only going out of business; they owner owes people I think $600 million, the attorney general shut them down. If you go online and type them up you'll see it. It's companies like that that give bad rep to all these industries. I mean, people like that don't need to be in the business world, right?
Not effective. Not effective. So you've got to make sure there's a real product.
Only Make Money From Recruiting
And then last but not least, is the obvious one. If you just make money from recruiting, that's the pyramid scheme. There was a company back in the day, it was called 2x2.net and what it did was it allowed you to buy seven spots. Let me tell you what seven spots is. You literally would buy your own position, then you would buy two other positions and you would buy two other positions and it was $420 per position. I never got involved, but I studied it. I had to find out exactly what was going on in the marketplace. So one position. . . $2800. The Attorney General came. . . guys were rolling in Lamborghinis. Every single place you saw, there was a Lamborghini. Green Lamborghini, purple Lamborghini. Everywhere you saw Lamborghinis, with 2x2.net sticker on the side.
They eventually went out of business. Why? Because you can't just buy multiple spots. That is not the real way of doing business. And their only product was a portal, and that's not how the money was being made. Eventually it got shut down. There's got to be real, tangible product, and you cannot make money from just recruiting people, when they pay $420 and make 200 bucks, that cannot happen if there's not a real product that's taking place.
S0 those are the common criticisms.
The Truth About MLM and Network Marketing
So now let's talk about the truth about MLM and network marketing which is an area I would have liked for John Oliver to have touched on.
#1: Few People Make It
Number one. Out of 100 people in network marketing, you know how many people make it? Is it 50? 40? 20? How many people do you think make it in network marketing? No matter what anybody tells you, one in a hundred make it in network marketing.
Everybody wants to brag that in their company, more people make it. And let's define what is making it. Making it is not making $17 an hour. Making it is not making $100 an hour. Making it is making a full-time salary where you can actually pay your bills and live off of it. That to me is making it.
Now here's a challenge. A lot of people will watch and say, "Oh my gosh, why would I ever do it if it's only one in a hundred?" Here's the truth. Tom Ferry, a real estate guy that people pay tens of thousands of dollars to for training says that 87% of real estate agents fail within five years. Think about that. They put five years of their life in real estate and it fails. How much money do you think they lost in that five years? How much marketing dollars? Five years!
Now here's a question. Does that mean real estate doesn't work? No! Real estate is hard work, but it works.
But even those 13% that make it, what part of the 13% do you think actually make decent money? You think all of them make six figures? No way. A small portion make six figures. Most of them make $20,000 - $50,000 a year. Some sell it part time. The average real estate agent only sells one or two properties per year.
There are a lot of rock stars that sell a hundred per year. I know a guy named Tom Hopkins who broke the record in Chatsworth and sold 365 in a year. He wrote a book called How to Master the Art of Selling. But most real estate agents sell one property per year. Are we going to say real estate doesn't work? Of course it works.
But, there's a part of that that you hear with network marketing. Not many make it.
#2: It's a Ton of Work
Next one. It's a ton of work. This is what people in network marketing and MLM are afraid to say.
It's a TON of work. You're not going to work 40 hours a week. It's a lot of work to make it in network marketing and MLM. But here's a challenge. Having kids is a lot of work. We have three kids right now. We're up two to three times a night with our youngest one that is six months old right now. This morning my wife said to me, "Pat, you know what I wish I had for Christmas?" "What?" "One night where I can sleep six hours straight."
Now, are people going to stop having sex and making babies? No. But it's a lot of work. Network marketing is a lot of work. So whether you're reading this because you're considering it, or whether you're reading this because you hate it and you're a critic, or whether you're reading this because you're in it, the truth is, stop saying it's easy to become a millionaire, because it's a lot of work. If you're thinking about it, you want to do it, you need to work a lot.
#3: Too Much Overselling
Next, they oversell. There's way too much overselling. You know what it's like. It's like the guy that goes on a date with a girl and oversells himself. You know what you're doing for yourself? You're setting yourself up for failure. Why would you tell the girl you're the greatest thing since sliced bread and your second cousin was Jesus, on the other side was Martin Luther King and your father is related to Abraham Lincoln? And you disappoint her the next day and there's a breakup.
If you're going to do network marketing, tell people it's a lot of work. However, if you work hard, here's what your life could be like. Will you do it?
Presented that way, you will be amazed how much more approachable and open people would be versus giving this whole gimmick on how easy it is.
#4: Too Little Focus on Customers
I think the problem with network marketing is it's so focused on reps and selling, that no one focuses on the customers. That's a problem. Customers are extremely important to your business. So take care of your customers. Treat them right. Show them a good time. Actually get what's right for them.
Somebody asked me the other day and they said, "Pat, why is sales so easy to you?" I have a very simple thing with sales. Sales is a piece of cake to me. Here's why sales is a piece of cake to me. Because in my mind, any time I sell, I ask this one question: If I was that person, would I buy from me? And if I can say yes, I can easily sell. If I can't say yes, I can't sell. That's the problem.
This is why if you don't believe in your product you cannot sell that product. You've got to know your number one people are your customers. If you're in network marketing and you want to have an edge on everybody else, why don't you treat your customers a million times better than anybody else treats them? Why don't you go to your company and say, "Let's focus on our customers a million times better than anybody else does it."
For many in network marketing, all they're worried about is their next commission check. But those that grow are customer focused.
#5: Abusive Marketing on Social Media
Next, the abusive way of marketing on social media. One kid sent me a message on Facebook. I responded back to him. I said, "Listen, I can tell you're in multilevel marketing. Copy and pasting this script and sending it to everybody, without doing the research on the person doesn't work."
This knucklehead responded back to me and said, "Well, you have no clue what you're talking about because many people are saying yes to it. Just because you got it doesn't mean. . ." And I was like, wow, you have a lot of audacity, but at least you're being honest about what you're telling me.
But I can tell you, you've got to make sure you're not abusive and you're not the annoying marketer.
Be a smooth operator. Be gentle about it. Don't be this overbearing, annoying salesperson that no one wants to do business with. You just don't want to be that person.
#6: Scams Do Exist
Next, scams do exist. It's very important to know this. Scams do exist. ZekeRewards was a scam. But not everybody is a scam.
Now here's the challenge. Do you remember back in the day, when a guy in high school dated a girl, and then when she broke up with him, he spread rumors about her? In some cases what the guy says is true, but other times it's just a rumor.
So a lot of people like to say, "Oh real estate's a scam. Keller Williams is a scam. New York Life is a scam. This company's a scam. That company's a scam." That is like you being the insecure guy that a girl left you or you couldn't hack it because it was so hard but you called it that.
But the truth is, there are some scams out there. Fortunately, eventually they get caught, and they get shut down. The government is not set up in a way to allow scams to last for a long time. They have a life span.
#7: It Requires a Long-Term Commitment
I wish more people would talk about this. If you do network marketing, it's a 10-year commitment. Do you know why? Because any business you do is a 10-year commitment.
So if you're going to do anything with network marketing, or MLM, follow the 10 year rule. If you want to follow the one year, two year, or even five year rule, go get a job.
10-year rule? You can be an entrepreneur and a business owner. And if you want to give network marketing a shot, it's 10 years.
#8: It's an Easy Target for Comedians
You need to understand that network marketing is a very easy target for comedians, for media, for everybody. Why? Think about it this way. There are typically three different things that are very, very easy to target. And you can't be naive and fall for it.
One of them is capitalism. It's very easy to bash capitalism. If you want to listen to any comedian or media, they love bashing capitalism. Why? Because almost everyone I know tried a business at a time and they failed. Capitalism is hard. Running a business is hard. It comes with anxiety attacks. It comes with panic attacks. It comes with challenges at times. It comes with you almost losing everything. It requires you work 80 hours a week. Most people don't want to do that.
Church and Religion
Now another one that media likes to take shots at is church, religion. It's very easy. It's very easy to take shots at churches. Why? Because a part of church and religion is annoying. You go to a church, you sit up there and the pastor gets up, "If you don't do this, you're going straight to hell. And if you do this, you're going straight to this," And I already know I'm going to hell, man. I just want to have a shot at heaven. Can I get a second chance? Please. There's a reason why churches get bashed. They're a target. They're an easy target.
And network marketing is also an easy target. You know why? Because anything you paint as perfect, is an easy target. Capitalism's not perfect. Church is not perfect. Network marketing's not perfect. You paint it perfect, you're an easy target. Stop painting it as perfect. Stop painting your business as being perfect. It's not perfect.
So network marketers, do yourself a favor and stop painting yourself as being perfect. Because you are not perfect. The more imperfections you talk about, the more people are willing to forgive you and listen to what you've got to talk about. You open up the door for people to want to listen to you.
#9: There are Tax Benefits (but be careful)
Next, there are tax benefits. But here's a problem sometimes with network marketers. They have no clue how to manage their money. And because they have no clue how to manage their money, the first thing they do is spend all their money and buy some nice things. The company goes out of business and they lose everything, and now they owe the IRS money. It takes 15 years to pay a lien, you can't get a decent job. You can't get financing on a house. Boom.
So if you are in the world of network marketing, if you're a leader or CEO running a company, teach your people on how to manage their finances well. Be disciplined with them on them paying their quarterly taxes. Talk to them what to do with their savings and set some money aside. Don't just get them to buy stuff because the more stuff they buy, the more they're locked into your company. It's like, hey, the more people lease cars, they have to stick. It's our retention plan because they have to work hard.
C'mon, man. Don't treat people like that. They have families. People perform better the more savings they have, the more valuable they are to your company.
I want you to have a couple hundred thousand dollars in cash savings. So I tell them to slow down before you buy that. You need to have some savings in place.
Take that route with people that you're developing.
#10: Network Marketing Actually Works
Next, network marketing actually works. This is the part that some people are going to like, and some people are going to hate. Network marketing actually works. It is a 35 billion dollar a year business. It has created a lot of jobs.
Every time I go home on the freeway, I see Mary Kay to my left. You know how many women I've met that talk about Mary Kay and the way that she changed their lives? Do you know how many? Do you know how many men I've met that when they bring up the name Rich Devos and Jay Van Andel and actually had a chance to work with them directly? You should hear what they talk about. People get emotional saying "this man changed my life." You know how many times people bring up the name Art Williams, and they say, "This man completely changed my life." Endless numbers of people have said this in different ways.
So what's the point? It works.
Network marketing is an industry that can be very effective. People in the industry are so competitive sometimes that they try to paint it too perfect, and it backfires on them. But there are some guys that are positively affecting the marketing place in a very good way, and I like the fact that that's taking place.
#4: Different Types of Network Marketing Compensation Plans
I'll give you my problems with a couple of these, and then you can be the judge of it.
#5: The Benefits of Joining a Network Marketing Company
Here are the benefits of joining a network marketing company.
Read Good Books
I'm all for any organization that gets people to read books.
Now obviously, I'm talking about books that elevate your mind. I'm not talking about 50 Shades of Gray.
There are a lot of celebrities and politicians that at one point were in network marketing. Many of them you would admire. They just don't advertise it. Many of them, you admire.
Whatever gets you to read books, and elevate your thinking, I'm for it. I support it.
Spend Time with Good People
You know, sometimes when you're down, you want to be around other people. It's good to be around other people that elevate you, they lift you up. It eliminates shyness.
There are some people that are very shy around other people. It's good to be around other people, because it opens you up. Some people are very timid. Network marketing will open you up in the business.
Have a Move Positive Attitude
There are a lot of people in network marketing that have a positive attitude, and being around them impacts every area of your life.
Network marketing teaches audacity. You have to talk to strangers. And I don't care what it is; anybody that has the audacity to talk to strangers will benefit in whatever other career they do.
Let's just say you get involved in network marketing, and you never stick around. But you're in it for three to five years and you pick up some of these good habits. In your next company, you're going to excel. Someone's going to say, "Oh my gosh, he's amazing! He's so great!' Because at some point, you learned audacity through being in network marketing.
It Leads to Other Businesses
Next, network marketing leads into other businesses. You know, if you fail in network marketing, you're going to at least say, "If I want to make money, I've got to be an entrepreneur." You may just go become a realtor and make a lot of money as a real estate agent. You may go become a financial adviser, or go into a completely different business, but you learned the freedom aspect comes from entrepreneurship through being in network marketing.
Increased Work Ethic
Next, increased work ethic. I'm all about people working hard. I'm all about people increasing their work ethic, especially the younger generation.
Improved Public Speaking Skills
Next, network marketing helps with public speaking skills. If you want to move up, you've got to learn how to speak. I used to be terrible, at public speaking, but when you give many speeches, you get good at it. I did a video on this once, which you can watch here:
Next is recognition, where you learn how to recognize other people, and you get recognized. There's a part of the recognition aspect that happens in a business.
Network marketing instills a lot of confidence.
Network Marketing Offers a Positive Environment
And then number 11 is the fact that there are a lot of people that either had a death in the family, or they got a divorce, or something bad happened in their lives and they need to be around a positive environment. Network marketing offers that. Simple as that.
Some people say that all churches are a con. Let's just say that's true. We could even say that God doesn't exist. But how many marriages have been saved by churches? How many millions of churches have given people a place to live that didn't have anywhere to go?
I don't care what denomination we're talking about. How many churches have helped a man or a woman that was suicidal and kept them from committing suicide?
Sometimes network marketing attracts people and they come in and they stick around because it's positive. They say, "I've got a better life. I don't need to give up my life." So there's a lot of positive to it as well to keep in mind.
#6: What to Look for in a Network Marketing Company
Last but not least, if you're going to get involved with a network marketing company, here are the things you should be thinking about when evaluating an opportunity.
Improve Your Game Plan
In this video I probably said some things you don't like, and I probably said some things you agreed with. It's irrelevant. I wanted to give you both arguments, for you to be able to find out for yourself the real truth about network marketing.
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