Schiit Happened by Jason Stoddard and Mike Moffat (Part 3)

Finally, the $99 solution. Mike was the one who thought that $99 gear was possible. In the past, it certainly wasn’t possible. I had my doubts that we could do it. I was very thrilled that we managed to do it. Audio is a seasonal business, where demand is strong between October to March. Magni and Modi were products we didn’t announce beforehand. The good thing is that you won’t miss your deadline. However, without a deadline, you won’t work as hard. If there are delays, you may miss your first mover advantage. As a result, we could have chased our vendors harder. The metal delivery was late. We missed CanJam as a result. The boards were late too. Thankfully, we just needed to switch out the capacitors before we could fit them in the new chassis. On Dec 13, 2012, we announced Modi and Magni. They outstripped the sales of all our other products combined. Nobody expected that we could deliver it at that price point. I saw the headphone market growing. I wanted to release something of value, and Schiit managed to do that. First time users could have excellent sound with the Magni and the Modi. Magni was neutral and had a ton of power. Modi didn’t need drivers and works well. Of course, there are better amps and DACs out there, however, with the quality of music that most people are listening, this would suffice.

Making another pricey product – no matter how advanced and innovative – is cool and all, and makes for good ego fodder. But making a good, solid product that almost anyone can afford, that’s a whole another thing entirely. – Jason Stoddard

And that’s what I wanted to do – to set the value bar, and the barrier to entry, much, much higher. – Jason Stoddard

Twilight of the Gods – the Ragnarok Saga from 2009 Until Today. Ragnarok was a big saga since 2009 We shipped a powerful speaker amp. If you pre-announce something, you will be wise to stop talking about it. Do not confirm that it will be a cool product. Speakers are very large. They need much damping factor. Our second Ragnarok was much better. It was solid state and used DC servos. However, it would get hot and we needed to find a solution. There are 3 ways to get rid of DC on your outputs: coupling capacitors; DC servo; Trimpots. I wanted a microprocessor to run everything on the Ragnarok. I released info on the product even before it was released. Software has a lot of bugs too. We ran into a shit load of problems. However, one day, the Ragnarok just smoked. It was really bad. Ragnarok didn’t work well at an audio show. It was nowhere near ready. The thing kept burning up because of too much current. We kept trying to write code for the firmware to prevent this. However, even after the power right, it didn’t sound good. There are plenty of other sagas than those mentioned above. Making great products requires a hell lot of pain at times.

Blazing a new path isn’t to be taken lightly. You should take a long, hard look at your capabilities and resources, and plan for how it will impact everything you do. – Jason Stoddard

You’ll Never Do Any Upgrades Anyway. Some audiophiles didn’t think we would do upgrades for the Bitfrost. Audiophiles can be very difficult sometimes. Mike was at the cutting edge of audio when he was at Theta. There was no standalone DAC at his time. Digital audio is new too. Mike measured jitter too. Audio in the 2000s is changing, but at a slowing rate as compared to the 1980s and 1990s. Most DACs are delta-sigma D/A converters. USB is a lot more mature and it is improving. DSD is not that hot now. WiFi digital audio is there. Bluetooth digital audio is also up there too. We didn’t know when we could upgrade the Bifrost. Pick your upgrades carefully and keep them to a minimum. For DACs, the chip AK4399 is our favorite. When you have upgrades, everyone wants to have it NOW, without hesitation.

Worst. Customer. Ever. The customer is always right. Is the customer always God? You can’t do well in business if you don’t love your customers. Amazon’s rule of customer service is that if you have to contact them, they have failed. How can you architect customer service? The smaller your customer service team, the more consistent their replies and the better it is for you. Prohibit the ‘hard sell’. Ban discussion of other manufacturers’ products. Don’t do promo, points, or sales. Less discounts means less complexity. If you have sales, some people will think they would be screwed if they missed the sale. Audio is subjective. Always maintain a high standard of customer service. You can’t take a day to reply emails, that is too slow. Choose your contact options. Choosing your feedback channels are important. However, do not pick too many or you will be flooded. If customers call you, it is bad as it is time consuming to answer calls. If you hire an audio expert to answer calls, it is going to be expensive. A nasty customer we encountered was when his item was a little late. He went into absolute berserk mode. We refunded him in the end. Yet, he was still raging. Believe me, not every customer is worth having.

If you’re going to get into business selling product direct to customers, you need to know two things: 1) You’re gonna get some buttheads; 2) You’re not gonna make everyone happy. – Jason Stoddard

We bend over backwards for our customers. But we won’t be bent forwards. – Jason Stoddard

Put enough information up about the product so most people can make their own decisions, but when they contact us, make the answers fast and simple. – Jason Stoddard

Anyone who emails us before purchasing is 8 times more likely to return the order. 2+ emails takes it up to 30 times. But again, are these bad people? Not at all. Merely indecisive. – Jason Stoddard

But you should be aware that you are talking to humans that can – and do – bend over backwards. But if you come in hot, that willingness to bend over backwards diminishes. – Jason Stoddard

Death of a Product. This will definitely happen some day. Should you cannibalize? It is important to understand product life cycle. No product can stay relevant forever. If you don’t cannibalize yourself, someone else will. It is easier to follow someone else’s rules rather than make your own. It is not smart to assume that sales slow down, it is time to upgrade. We killed the Asgard after the Magni was introduced. Asgard didn’t have gain switching and preamp outputs. The Asgard 2 was introduced and it was much better. It was dead silent on low gain. We had an absolute winner and knew it would be terrific. However, when we produced the Asgard 2, it had a hum. We swapped them.

R&D Sometimes Means, “Try it, See If It Works”. R&D can be very focused. However, at times, it shouldn’t be. Playtime is important. Let your engineers have fun as it will pay-off. We managed to get cheap tubes off eBay and we started tweaking to see how we could fit them into our products. This was the road to Vali. They were much better than the other tubes out there and required little power. The problem with tubes is that tube microphonics might happen and it appears as a form of noise.

But I strongly believe that R&D shouldn’t always be so focused. There’s value in making sure your engineering staff has time to play with crazy ideas. – Jason Stoddard

Name Me One Non-standard Format That’s Succeeded, Ever, Or, A Trickster Cometh. DSD was out in 2013. DSD requires a new type of filtering, which would create noise. We were initially not keen as our products would need a lot of upgrades. We were afraid of missing out on sales if we didn’t jump on the bandwagon. It’s a special software that will go nowhere. Many customers inquired on when our products will support DSD. Reluctantly, I managed to convince Mike to think about it. Our sales kept increasing though. We suddenly wanted to make the least expensive DSD DAC on the market. This would help to drive adoption. It would also have an option for PCM, where we could run a PCM DAC through it. It would be like an add-on. We didn’t have DSD capable USB receivers. We managed to develop a prototype that could play native DSD, using a crystal semiconductor DAC. It worked fine with the AKM DAC. We tried to bring it to market, if it did, we would work on 2X solution. Loki was introduced, where people could add DSD to any DAC for $149. However, it was received as well as we thought. Mike has mentioned no more DSD development until something big happens. However, the public didn’t seem interested in DSD all that longer. There are plenty of DACs out there that support DSD, but where is the software. DSD recordings are expensive for artistes and is it unlikely there will be happy. Also, the improvement in sound quality is marginal and may not be detected.

No Sample Left Unchanged: Digital Today. Let’s talk business philosophies. A typical AV preamp must have a lot of features. There are many standards, such as Dolby Atmos. It is hard to support all these formats. We have to pay licensing fee to put the logos on the box. Should we be at the whim of the standard-setters, like surround-sound standards? Would customers be okay with a processor that sounded good that didn’t support Dolby Digital or DTS? Digital audio has made steady progression over the years. The multibit technology has been improving. Jitter numbers have been decreasing steadily. 1-bit sigma-delta modulation is cheap and has good measurements. The phone DAC ain’t too shabby either. Today, it is a largely sigma-delta world. Lobby for better recordings in the studios, which will help us. DAC mostly upsample and use asynchronous sample rate conversion, affecting the original samples. Samples which have passed a digital filter are not the same. Yggdrasil aims to address that. We have the solution to retain the original samples, without oversampling. The more bits, the less the quantization error. The best DACs around can do only 20 bits. To achieve 24 bit linearity hasn’t happened yet. We have plenty of music in PCM format.

And “32 bit?” LOLOLROFLCOPTER. There will never be any 32 bit music. Because physics. – Jason Stoddard

Black Friday. It is important for a company to define why you do certain stuff. One day, the metal maker delivered us black chassis and we decided to sell them. We would make it a one-time special. In Nov 13, we announced a limited run of black Schiit products. However, there was no big wave of orders for them. The issue is because price and quality matter more than cosmetic colours ultimately. What has this got to do with Black Friday? Many companies participate in Black Friday sales. We choose not to participate. It is great not to stand against a trend sometimes. We don’t do fancy chassis to increase the cost. We do direct distribution too and don’t have a dealer network. A lot of audio experts and engineers have praised our products for our sound quality.

As a start-up, always remember clamor doesn’t always equal the demand. – Jason Stoddard

Niche features or functionality can evoke a lot of passion – and, while that passion may translate into many emails, it may not translate into sales. – Jason Stoddard

You Want to Pay How Much? Or, How We Moved Again. We were thinking of moving office. Someone else wanted to move into the building and we had to go. Good performers expect to be paid well. They also value flexible work hours. For instance, you can work from home etc. Our assembly team usually works at night. There could be a lot of problems. The owners could realize their profits are small or non-existent. When they exit, you have to buy back their shares and value the company. You will have to pay lawyers too to step in. There are also tax implications of giving away shares. Do not insult the intelligence of your motivated and engaged staff. Don’t minimize their worth. Don’t insult their intelligence. Tell the truth and keep your promises. If you can’t pay as well as some other companies, tell them that they might receive more benefits in the future as the company grows. Always keep to your promises. If not, things will get ugly. Provide personal motivation. The key is to get smart, motivated people to start with. We don’t have a sales department. We spend 0.2% of revenue on marketing. Always remember that your people matter and that your customers matter too. Motivated employees take the initiative to do things. We moved into a huge 5300 feet space. We started looking like a real company. Rina would sublease the space upstairs. We didn’t spend a lot of money on renovating or sprucing up the place. However, we bought a fridge, racks, desks and test equipment etc.

Exactly 2 things motivate high-performing employees: money and freedom. – Jason Stoddard

How do you pay good salaries when you’re just starting up and money is tight? Great question. Tricky answers too. Because the first temptation usually is to give away a percentage of the business. Which is exactly the worst thing you can do. – Jason Stoddard

If you don’t literally want to create everything by hand, yourself, you need great employees. Repeat after me: Don’t minimize their worth. Don’t insult their intelligence. – Jason Stoddard

Start with a livable salary, and add bonuses that are based on visible personal or company metrics. Number of products shipped. Number of products built etc. – Jason Stoddard

Motivated employees do not think that having a lounge matters. They think it’s funny. They’re thrilled to help us grow. And growth doesn’t come from Hermann Miller chairs and Steelcase desks and faux-finish paint and $600 LED lamps. – Jason Stoddard

A Real Company? It is end of 2013 now. Finding a niche is important. Be memorable and understand that not everyone will love you. Niche is where we want to be. We do not want to be like Beats, Bose etc. You have to love audio to be in this business. We have a unique sound at a unique value. It is important to run from both conventional advertising and social media both. It is hard work, but it is fun. There will be problems but we crack our head and solve them. There is still much work for us ahead. Remember that it is always important to be unique. Simply throwing marketing money at problems won’t work. Stay where we are, and get better at it. Do listen to your customers for their input. Continue to challenge the established wisdom.

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Schiit Happened by Jason Stoddard and Mike Moffat (Part 1)

Foreword – Christmas Presents Until the End of Time? We were wondering whether our products could sell. Schiit Audio is about following gut feelings and not following the herd. Firstly, the name of the company was impressive. They did a direct sales model with no outside funding. Everything is manufactured in the US. Jason is the co-founder of Schiit and Mike is the business partner. Mike has experience in entrepreneurship and in audio. I am a science fiction author and a veteran of the marketing wars at centric.com. The key to our success is that we picked the right niche. You don’t have to make everyone love you, you just need to make some people love you. Go direct in your distribution. If you want venture funding, this book ain’t for you. However, your one big idea might not get any funding and fail in the end. This book is for those without any venture funding.

Bottom line, there are plenty of billion-dollar ideas out there. Making one into a real company that succeeds isn’t just a lot of work. It’s about money, luck, connections, money, luck, money, and luck. And more luck. – Jason Stoddard

The Line is Down. Here’s an Undocumented Test Rig. Fix It. It was first day of work at Sumo in 1989. There were many resistors, capacitors on the workbench. I was asked to fix it. The MOSFET matcher was down and it was affecting production. There was no schematics also. Everyone was staring at me, waiting for me to complete it. I wanted to be in audio and I had a speaker company on the side. Business Lesson 1: Say you can do it. Then deliver – at all costs. I managed to fix is as the connection was faulty. In 2 years, I was promoted to be chief engineer in designing amplifiers. Once, their products was faulty as it might catch fire, I ordered them not to ship them as it would have safety implications. However, customers kept sending them back to us to service. Thus, this took up a lot of our time. Business lesson 2: Don’t ship stuff that blows up. Ever. Never sell anything you haven’t made yet. Don’t lose customer returns, or use them to fix other customer returns. Don’t try to go too broad. Business lesson 3: Don’t dwell on the negatives – learn from them. I believe in subjective-objectivism in audio. This means that measurements are important to some extent. Amps with similar specifications might not sound all the same. Business lesson 4: Don’t discount personal experience. Mike was working in Theta and their profit was at least 8 times of Sumo. Business lesson 5: Be open to meeting new people, and transformative ideas. I started moonlighting for Theta. We wanted to create an inexpensive DAC. We made the Cobalt 307, a combination of our expertise. It sold like hot cakes. Selling direct wasn’t feasible in 1993. Theta Gen 5 was the first discrete output DAC that was made by them. Business lesson 6: Take a chance, do crazy things… a lot of times it’s worth it. The magazines at that time only liked to feature expensive DACs and amps. Mike eventually went to start Angstrom, a company into Surround Sound.

Fifteen Years on the Marketing Front Lines. What has marketing got to do with engineering? I wanted to make audio stuff all along, but somehow I returned to marketing. I founded, Centric, which does marketing for tech companies. We certainly can’t afford those SuperBowl advertisements. Tech companies do not have huge marketing budgets. Advertising agencies primarily develop and place advertising. Interactive agencies can do the above but also some web and mobile development. There are also social and design agencies, PR agencies, marketing agencies. Why is marketing necessary, you may ask? I started Centric when I was 28. It was fun as Centric rode the dot com boom in the early 2000s and went into web development work too. The fact is that most companies are too terrified to be effective at marketing. Don’t be scared to stand out from your competitors. If you keep second guessing what your competitors do, you might think that you are not able to come up with anything better and do nothing instead. Don’t benchmark yourself into mediocrity. Most companies have no idea what to do in marketing. Marketing should make money and the effort should be focused on the most effective and measurable tactics. Fear is the mind-killer. Kill the fear before it spreads. It is not necessary to have the products with the best specifications. Marketing is important, but don’t do it blindly. Focus on the stuff that works only. Don’t simply believe everything an agency tells you. Forget about chasing new/ easy/ cheap. Your best bet is to stay online, measure, refine and do better. Microsocial almost always works, unless you’re a dick. Find the small passionate community that you are interested in. Measure everything you do. Your website and e-commerce system are the most important thing. Get featured on the press, online and offline. Online ads are tricky, but find those that you can track all the way to your sale. I am a published science fiction writer now after my wife pushed me to write books.

Pay lots of attention to microsocial, and be prepared to post, respond, meet new friends, piss some people off, delight some others, and become part of your specific niche. – Jason Stoddard

Who’s going to kick you in the can? When will you do your writing, or company-building, or adventuring, or whatever you want to do? – Jason Stoddard

From Death, Rebirth: Armageddon 2009. All Great Things Come to an End. Centric was in trouble. However, after Centric, we got Schiit. I started writing after Centric started to grow again after 2009. Writing means time without distractions. When I was at home, I paired a pair of tube amp with my AKG 701s and I listened to blissful music. Headphones didn’t need that much power and Class A was possible. I tried the Cobalt DAC too, and the music was a lot more detailed. Was it possible to manufacture something in the US? And how would you go about selling it? Selling direct cuts out the distributors/ dealers. 48% to 65% of the cost can be in distribution. The dealer route was old fashioned and it was easy to start an e-commerce site. Let’s make it work.

You Always Say You Have Schiit to Do, Why Don’t You Just Call It That? I was out of the audio game for so long. There were a lot of questions when we started Schiit. Thank goodness the cost of electronics came down in recent years. We wanted to start with 10k funding at the start. Google gives a lot of things away for free. Google is really an ad company. Only recently did we get into 3D CAD drawings. We designed our products in a cheap simple and minimalistic box. Amps need heatsinks, especially Class-A amps. Instead of a heatsink extrusion at the back of the amp, we used the chassis as a heatsink. In the end, we went for a fairly thick aluminum. How were we going to make the DAC inexpensive? We could have bought the machinery to make it ourselves, or contact with someone who can supply finished parts. However, the second option has its problems as the metal supplier might screw up. Furthermore, most of them did industrial instead of commercial products. My wife suggested that I call the company schiit. That name would certainly catch the attention of others. We wanted to be unforgettable. There, the name was born.

$800 in Screws? The failures of building prototypes never bothered me. We didn’t have all the parts we needed. We were reliant on a critical part from one company and that company screwed up. I wondered if people would think we were a joke? There will be days you feel like quitting. We would try hand-soldering ourselves. We would try doing it in our garage. We would start building inexpensive products first. My wife helped with the soldering too. We did a WordPress template to our own custom design. We linked it to an easy-to-integrate payment processor. Next, our website was up and we were thrilled. Selling online is getting easier by the day and is definitely worth trying. Now, let’s talk business. Business plans are a waste of time. This is because it often sounds too intimidating to start. Venture Capitalists also know that business plans are bullshit. Business is evolving too quickly that a business plan can seem obsolete very quickly. Learn to pay more attention to the market instead of your business plan instead. You can write a short business brief, which is okay. Just incorporate a corporation, not a partnership etc. You should do it because of limited liability. My partner and I decided that we would not draw salary for 2 years.

If you start a business, there will be doubts. Lots and lots of doubts – Jason Stoddard

Trust me, if you don’t have a working product that’s making money, you’re not getting capital even if your business plan was written by the clones of Hemingway and Rockefeller. – Jason Stoddard

What will this company do that no other can do? If others can do this, or are doing this, how are significantly better? Why would someone pay money for it? How will they find out about it? How much money do you need to start it –  Jason Stoddard

The First Order Is… For Something We’re Not Selling. You can pick the date to launch the product. When you launch something, you bare yourself to the public. You don’t know how the public will react to your product. It was June 15, 2010. Perfect the product before launching. Find your press contacts and get their emails. Write a short article to them. We got the audio sites to cover our product. Our products were well received and priced to be affordable. Jude from Head-Fi called us and had some questions for us. He was surprised how we managed to keep the costs down. Jude liked the Asgard. The orders kept coming in and we had to keep shipping. The Valhalla metal came in and we were in for a big shock.

Launching a product isn’t like live theater in one respect: at the theater, you’ve got a play date. The show’s gonna go on, whether you’re ready or not. It doesn’t matter if all the costumes were lost because a drunk truck driver them down a ravine. You need to get on stage and do something. – Jason Stoddard

Metal Debacle, Valhalla Style. I hated the chassis that was made. They were all unsellable, some were cracked and the supplier tried to fix it. Your metal vendor will screw up eventually. I couldn’t find a metal supplier on such short notice. We started looking for a new metal shop. We finally found one that was suitable, but we had to wait for their products. There are many ways to finish metal, graining, bead-blasting, etching etc. It is important to work with an inexpensive chassis. We were facing back-orders for the Valhalla. Thank goodness the metal was great. The quality of the metal was acceptable and we were lucky. Now, we received positive feedback on the Valhalla. We were invited by Jude to showcase at CanJam.

If you’re looking for a get-rich-quick, work-two-hours-a-week-from-home deal, making things ain’t for you. Stuff will go wrong. You will have to deal with it. – Jason Stoddard

Bringing a product to market is like screwing a gorilla. You aren’t done until the gorilla’s done. – Mike Moffat

We Screw Up Sennheiser and Insult Some Big Guys. Trade shows are very tiring and have long hours. Setting up is actually very tedious. Even in this Internet era, trade shows are popular and people still like to visit. If you sell via distribution channels, trade shows are good for you. If you sell direct, then no. What could possibly go wrong at CanJam? We were late. I shipped the amps we were supposed to bring. However, Sennheiser couldn’t find them. The audio industry has grown a lot recently. Rina finally got the amps and we were all set. We had our fair share of interesting visitors. Schiit had its set of loyal followers. The ‘Made in USA’ label seemed very attractive. There was an anonymous guy who appeared to be jealous that our products were so good but they were not made in China.

Powering Up: Lyr. Product roadmaps are important. It is a product life cycle in the market. How would one product fit with the other? Is it upstream or downstream? You would need to refresh the product line also. We wanted the Lyr. There are Class A, Class AB amps. Class As are usually big, hot and heavy. Class AB introduces non-linearities in the end. Class A and Class B are well understood, but something in between is not. We looked to the past for inspiration and kept tweaking things. We didn’t have the capabilities to hand-make the products anymore.

Engineering is a lot of heads-down work. There’s not a lot of heroics or drama. You know, like everything in real life. – Jason Stoddard

Our First Employee, Our First Board House. Having employees is a line crossed, and it’s hard to go back. You can have a successful business without employees. However, it limits your growth. You have to meet payroll and have additional responsibilities once you have an employee. Can you afford employees?  With employees, you have more admin costs. We modified our house and added storage space. After Lyr, we needed help. I had a friend who wanted to help. He was Eddie. We hired him. He was meticulous and was okay being made the number of pieces he made. We wanted him as a contractor and not an employee, as being a contractor would mean we didn’t have to give so many benefits. Eddie was happy to work for us. Eddie also tried to improve our processes. He was a great friend. We outsourced the making of PCB Boards and they were in terrific shape. There are some things which you don’t have to do yourself.

USB Sucks! Or, Mike Joins the 21st century. We are in early 2011 now. It was time to talk about Mike. Mike was the guy who invented the DAC. We eventually invented Bifrost. Mike’s idea for a DAC was the Yggdrasil, one that costs 10 times more than Asgard. Mike didn’t like USB ports. However, most people only use laptops as their audio source and would need it. USB 1.1 and 2.0 were about the same. Sometimes going the grain is not the best idea. Mike was eventually ok with the USB, but he wanted an upgradable system. Like, you can upgrade the DAC when the technology changes. We got Dave on board to work on Bitfrost. It was a modular DAC and we went with the AKM chip. We took a long time over the USB input. The different type of USB modes concern data rate, not audio. 1.1 can transmit data up to 12Mbps and transmit audio up to 24/96. 2.0 can transmit up to 480Mbps and transmit audio up to rates like 32/768. USB Audio Classes are standards used by the industry and are not USB modes. USB Audio Class 2 usually requires drivers. 24bit is 144db dynamic range and the limit of the Stanford analyzers. Toslink is better than USB. Bitfrost was a truly unique DAC to be invented. You should be aware of what your competitors are doing and improve from there. However, how do you know your ideas are better than prevailing wisdom and can be realistic to implement? There are pros to doing what others are doing. You get the product out faster. However, if you do that, you expect disappointment from customers. You will just be like everyone else, with no ideas of your own.

Schiit Goes Evil? We received an email and it caused us problems. Schiit hit the fan on Head-Fi. NwAvGuy accused us of building dangerous amplifiers. He said our products were misguided and sloppy. There was some turn-on transient problem with the Asguard. We defended our products on Head-Fi. There was a discrepancy in our DC offset. Later, we added a relay mute on our Lyr. Anyone who wanted to return our Asgard to us could do so and we would give a refund. I wanted to pull the plug on Schiit as we weren’t making much money. Mike said we would add the relay and kill the current run. For future Asgards, we would add the delay. The problem occurred because we relied on a memory of a measurement that was incorrect. NwAvGuy’s complaint forced us to improve as a company and improve our products. We welcome feedback like those by NwAvGuy. We learnt that we don’t have all the answers.

We have a “live and let live” attitude at Schiit. We don’t think we know it all, and we don’t believe that our answers are always the best ones. We know how much work it takes to bring something to market, and we salute every company out there. – Jason Stoddard

Because no business, no matter how great the engineers, no matter how skilled the production team is, no matter how solid the logistics guys are, no matter how enlightened the management is, is infallible. You screw up. Bad things happen. And you make them good. – Jason Stoddard

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