#261 Tobi Lütke - CEO of Shopify: How Shopify Became a Cheat Code for Entrepreneurs
In this episode of the Shawn Ryan Show, Shopify CEO Tobi Lütke shares the story of how a small snowboard business led to the creation of Shopify, a platform that now supports over 4 million merchants and has processed nearly $1.5 trillion in transactions. He explains how Shopify has made entrepreneurship more accessible by reducing the cost and complexity of starting an online business from thousands of dollars to just $20 per month.
The conversation explores Lütke's methods for maintaining customer understanding, including his practice of testing the platform under pseudonyms and reviewing user videos. He also discusses his views on AI's role in the future of entrepreneurship through tools like Shopify's Sidekick, and shares insights about balancing the demands of running a major tech company with family life, including his approach to teaching entrepreneurial thinking to his children.
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1-Page Summary
Toby Lütke's Journey and Founding of Shopify
When German-born Toby Lütke moved to Canada for his wife, work permit issues led him to an unexpected path. Unable to find traditional employment, he started an online snowboard business called Snow Devil. Frustrated with the inadequate e-commerce solutions available, Lütke, a skilled programmer, created his own platform. This eventually evolved into Shopify, which now supports over 4 million merchants and has facilitated nearly $1.5 trillion in transactions.
Impact of Shopify in Empowering Entrepreneurs
Shopify has democratized entrepreneurship by dramatically reducing the barriers to entry in e-commerce. According to successful Shopify customer Shawn Ryan, before Shopify, launching an online business required $20,000-$25,000 in development costs. Now, entrepreneurs can build a complete website in just four hours for $20 per month. Lütke emphasizes that this accessibility has transformed entrepreneurship, allowing individuals to turn their "plan B" into their "plan A."
Importance of Customer Understanding in Building Successful Businesses
Lütke maintains a hands-on approach to understanding customer needs. He dedicates Sunday evenings to watching videos of new entrepreneurs using Shopify and regularly tests the platform himself under pseudonyms. This practice of "red teaming" helps identify weaknesses and ensures continuous improvement based on real user experiences.
Role of AI in Future Entrepreneurship
Lütke sees AI as an "underhyped" technology that will revolutionize entrepreneurship. Through Shopify's AI assistant, Sidekick, entrepreneurs can access expertise across various fields and automate complex tasks. Lütke believes that AI's widespread availability through APIs at low costs will democratize advanced capabilities, fostering innovation and independence in business.
Work-Life Balance and Parenting as an Entrepreneur
While running Shopify, Lütke prioritizes family time, including 6 PM dinners and activities with his children. He approaches parenting with an entrepreneurial mindset, encouraging his children to think creatively about improving their toys and having them pitch opportunities to earn money rather than receiving an allowance. Lütke fosters a growth mindset by teaching his children to view challenges as opportunities for learning and development.
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Counterarguments
- While Shopify has lowered barriers to entry, it has also contributed to market saturation, making it harder for individual online businesses to stand out and succeed.
- The claim that entrepreneurs can build a complete online store in about four hours for $20 per month may not consider the full scope of work and additional costs involved in creating a successful e-commerce business, such as marketing, inventory, and customer service.
- The accessibility of platforms like Shopify might lead to a devaluation of professional web development and design services, potentially impacting those industries negatively.
- Lütke's hands-on approach to understanding customer needs, while commendable, may not be scalable as the company grows, and it might not fully represent the diverse challenges faced by all users of the platform.
- The assertion that AI is "underhyped" could be debated, as there are many sectors and experts who have been proclaiming the potential of AI for years, and there might be a risk of over-reliance on AI, overlooking the value of human intuition and creativity.
- The availability of AI through APIs at low costs could lead to a homogenization of business services and a lack of differentiation among businesses that rely heavily on these tools.
- Prioritizing work-life balance is important, but the narrative of a successful entrepreneur managing this balance can sometimes create unrealistic expectations for other entrepreneurs who might be struggling with the demands of their businesses.
- Applying an entrepreneurial mindset to parenting could be criticized for potentially overemphasizing the importance of monetization and business skills in childhood development, as opposed to other values like altruism, artistic expression, or free play.
- Teaching children to view challenges as opportunities for learning is positive, but it's also important to acknowledge and validate the emotional difficulties they may face, ensuring that the growth mindset doesn't inadvertently minimize their feelings.
Actionables
- You can explore entrepreneurship by starting a low-cost online store to sell a niche product you're passionate about, using a platform like Shopify to minimize initial investment and technical barriers. For example, if you have a hobby such as creating handmade jewelry or designing custom t-shirts, you can set up an online shop within hours and start marketing your products through social media to test the market with minimal financial risk.
- Enhance your problem-solving skills by adopting a "red teaming" approach in your personal projects, where you critically assess your own work as if you were an outsider looking for flaws. For instance, if you're writing a blog, ask a friend to challenge your arguments or find gaps in your content, which can help you refine your ideas and present stronger, more compelling articles.
- Integrate AI tools into your daily tasks to boost productivity and learn about emerging technologies, such as using AI writing assistants for drafting emails or content, or employing AI-based financial planning apps to manage your budget. This hands-on experience with AI will not only save you time but also give you insights into how AI can be leveraged for more complex tasks in the future.
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Toby Lütke's Journey and Founding of Shopify
Toby Lütke's journey from starting a snowboard business to creating Shopify showcases his ability to address personal challenges and transform them into opportunities that redefine the e-commerce landscape.
Toby Lütke's Journey To Founding Snow Devil In Canada
Toby Lütke, originally from Germany, moved to Canada to be with his wife. Due to work permit issues as his education was not recognized in Canada, and on a visitor visa initially, he was unable to gain employment. However, upon marrying, his wife could sponsor him as a family member. A lawyer informed him that he could start a company, as it would not require a work permit. Combining his knowledge of technology and his interest in snowboarding, he started an online snowboard business named Snow Devil.
Lütke Moved To Canada For His Wife and Started Snow Devil, an Online Snowboard Business, Due to Work Permit Issues
Lütke's journey to entrepreneurial success began through a combination of personal circumstances and passion. Unable to obtain a proper work permit, he seized the opportunity to pair his computer skills with his enthusiasm for snowboarding. This led him to establish Snow Devil, an online snowboard shop.
Lütke Realizes Existing E-Commerce Software Is Inadequate for Entrepreneurs
Lütke recalls not finding suitable e-commerce software for Snow Devil, which prompted him to develop his own solution. Existing options were costly, outdated, and cumbersome, unsuitable for entrepreneurs.
Lütke Built His Own Accessible Platform After Finding Existing E-Commerce Options Expensive and Difficult
Frustrated with the lack of quality options and believing that the internet should be an economic equalizer, he created his own e-commerce platform. Lütke's determination and pride in his craft as a computer programmer fueled his drive to make entrepreneurship more accessible for all, regardless of their background in programming.
The Founding and Growth of Shopify
Lütke pivoted from Snow Devil to Shopify, determined to develop a platform that would serve the needs of entrepreneurs better than the ...
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Toby Lütke's Journey and Founding of Shopify
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Actionables
- You can explore alternative sponsorship options if you're facing work-related immigration issues, similar to how family sponsorship enabled Lütke's entrepreneurial journey. For instance, look into programs like the U.S. O-1 visa for individuals with extraordinary abilities or the EU Blue Card for highly skilled non-EU nationals, which might allow you to work on your business ventures while complying with immigration laws.
- Consider creating a side project that aligns with your hobbies or interests, as Lütke did with snowboarding, which could potentially evolve into a full-fledged business. Start by identifying what you're passionate about, then research the market to see if there's a niche you can fill. For example, if you love baking, you might start a blog or YouTube channel sharing unique recipes, which could lead to opportunities like publishing a cookbook or starting an online bakery.
- Look for gaps in the market where you can offer a better solution, drawing i ...
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Impact of Shopify In Empowering Entrepreneurs
Shopify has played a pivotal role in democratizing entrepreneurship by making it more accessible for millions to start online businesses without the need for extensive resources or skills. Tobi Lütke, Shopify's CEO, and Shawn Ryan, a successful Shopify customer, discuss the significant impact of the platform.
Shopify's Role in Democratizing Entrepreneurship
Shopify Empowers Millions to Start Online Businesses Without Extensive Resources or Skills
Shawn Ryan shares that before Shopify, launching an online business was cost-prohibitive, with websites costing around $20,000 to $25,000 to develop. Every addition or change to his product offerings would result in extra costs and required help from a developer. However, after discovering Shopify, Ryan built an entire website in roughly four hours, referring to the experience as a "cheat code to entrepreneurship" due to its ease and efficiency.
Tobi Lütke discusses the transformative power of entrepreneurship in allowing individuals to achieve independence and contribute to the marketplace. He insists that entrepreneurship is a virtuous cycle that rewards the creation of value. Shopify, he explains, opened up online store creation to those who could not afford the previously high costs, changing the market by letting new entrepreneurs start their businesses online.
The affordability of Shopify ($20 a month) contrasts sharply with the thousands usually needed for traditional website development. This affordability enabled Ryan to reinvest capital into his products and other business areas. Lütke points out that prior to Shopify, the number of online stores was limited to wealthy businesses that could afford substantial investments. Shopify has fundamentally altered this dynamic.
Personal Significance of Shopify For Lütke and Customers
Lütke Values Shopify's Role In Fostering Entrepreneurship and Independence, a Journey He Knows Well
Tobi Lütke emphasizes that entrepreneurship is crucial for market contributions and individual independence. He discusses the accessibility of Shopify, arguing that it helps potential entrepreneurs transition their "plan B" into their "plan A." Tools like Shopify and Facebook advertising have become part of an ecosystem that simplifies entrepreneurship access compared to the past, when methods li ...
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Impact of Shopify In Empowering Entrepreneurs
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Counterarguments
- While Shopify has made it easier to start an online business, it has also contributed to market saturation, making it harder for individual stores to stand out and succeed.
- The ease of starting a business on Shopify might lead to a higher failure rate as individuals with less preparation and business acumen are able to launch businesses.
- Shopify's monthly fees, while low, can still add up over time, especially when additional paid features or apps are necessary for a store's operation.
- The platform's simplicity could potentially limit the customization and scalability of businesses as they grow, compared to custom-built solutions.
- Shopify's ecosystem, while supportive, can create dependency on a single platform for business operations, which can be risky if the platform changes its policies or pricing.
- The narrative that anyone can turn a passion into a successful business may oversimplify the complexities and challenges of entrepreneurship.
- The focus on the emotional significance of the first sale might overshadow the ongoing hard work and resilience required to maintain and grow a successful business.
- Sh ...
Actionables
- You can validate your business idea by setting up a simple Shopify store and using social media to drive initial traffic. Start by choosing a product or service you're passionate about, create a basic Shopify store, and share your products on platforms like Instagram or Facebook. Monitor the engagement and feedback to gauge interest in your offering before investing more time and money.
- Explore dropshipping as a low-risk entry into entrepreneurship by using Shopify's integrated dropshipping apps. Select a niche market, find suppliers through apps like Oberlo or Spocket, and list their products on your Shopify store. This way, you can start an online business without holding inventory, allowing you to focus on marketing and customer service.
- Leverage the power ...
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Importance of Customer Understanding In Building Successful Businesses
Tobi Lütke's close attention to customer experience and feedback has been central to Shopify's growth and success.
Lütke's Commitment To Staying Connected to Shopify's Customers
Tobi Lütke, the CEO of Shopify, has maintained a hands-on approach to understanding customer needs and challenges, a strategy that has seen the company flourish.
Lütke Reviews Interviews and Interactions to Understand Customer Needs and Challenges
Lütke dedicates his Sunday evenings to watching videos of new entrepreneurs using Shopify, analyzing supercuts of interviews to identify where and how customers struggle with the platform. He also conducts comprehensive bi-monthly reviews of every project within the company to ensure that all teams are responsive to consumer experiences and concerns.
Lütke Tests Shopify Himself As a Customer to Improve the Platform
Further demonstrating his commitment, Lütke personally uses Shopify by setting up new shops, going through the onboarding processes, and even contacting customer support under pseudonyms. This practice of "red teaming," or looking for weaknesses within his own company, aids in continuously refining Shopify based on the user experience.
Lütke's Focus on Products That Meet Real Needs
Lütke's insight into successful company-building is founded on genuinely solving customer problems.
Lütke Believes Successful Companies Are Built by Founders Who Solve Customer Problems
Reflecting on his early days, when he would respond to support emails and implement new features overnight based on customer suggestions, Lütke emphasizes the importance of staying intrinsically motivated by customer feedback. H ...
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Importance of Customer Understanding In Building Successful Businesses
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Clarifications
- "Red teaming" is a practice borrowed from cybersecurity and military strategy where a group simulates attacks or challenges to identify weaknesses. In business, it means testing products or processes from a critical, adversarial perspective to find flaws. For Shopify, Lütke uses red teaming by acting as a customer to uncover issues others might miss. This helps improve the platform by addressing real user problems before they become widespread.
- "Supercuts of interviews" are edited video compilations that highlight key moments or recurring themes from multiple interviews. They help identify common customer pain points and patterns quickly. This method saves time by condensing extensive footage into focused insights. It enables leaders like Lütke to better understand user experiences and improve products effectively.
- New entrepreneurs often struggle with setting up their online store due to unfamiliarity with e-commerce tools and technical steps. They may find it challenging to customize their store design to match their brand without coding skills. Managing inventory, payment processing, and shipping logistics can also be confusing for beginners. Additionally, understanding how to attract and retain customers through marketing on the platform is a common difficulty.
- Bi-monthly comprehensive reviews are regular meetings held every two months to evaluate all ongoing projects and company activities. They help identify issues, track progress, and ensure alignment with customer needs and business goals. These reviews promote cross-team communication and accountability. This process enables timely adjustments to improve products and services based on feedback and performance data.
- Tobi Lütke is a Canadian entrepreneur and software developer originally from Germany. He co-founded Shopify in 2006 to create an easy-to-use e-commerce platform after struggling to build an online store for his own snowboard business. As CEO, he has guided Shopify's growth into a leading global e-commerce company. His technical background and entrepreneurial experience shape his customer-focused leadership style.
- "Snow Devil" was Tobi Lütke's original snowboard equipment online store. He struggled to find suitable e-commerce software for this business. This challenge motivated him to build Shopify. Thus, Snow Devil represents the real-world problem that inspired Shopify's creation.
- Onboarding processes refer to the steps new users go through to start using Shopify effectively. This includes account setup, store customization, adding products, and learning key features. The goal is to make it easy for new entrepreneurs to launch their online st ...
Counterarguments
- While Lütke's hands-on approach is commendable, it may not be scalable as the company grows larger, potentially leading to a disconnect between top management and customer experiences.
- Relying heavily on the CEO for customer understanding could create a bottleneck and may not always reflect the diverse experiences of all users.
- Bi-monthly reviews, while thorough, may not be frequent enough to keep pace with the rapid changes in customer needs and market dynamics.
- Personal testing of the platform by the CEO can be biased by his inside knowledge of the system, possibly overlooking issues that would be apparent to a true novice user.
- The focus on customer feedback could lead to a reactive rather than proactive approach to innovation, potentially missing out on breakthrough ideas that customers may not have envisioned.
- The narrative implies a strong link between customer feedback and product development, but it does not address how Shopify balances this with its own vision and strategy for the future.
- The emphasis on solving customer problems is important, but it is al ...
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Role of Ai in Future Entrepreneurship
Tobi Lütke expresses strong belief in the potential of AI technology to empower entrepreneurs, stating that despite the existing hype, AI is actually an underappreciated advancement that will revolutionize the entrepreneurial landscape.
Lütke's Optimism On Ai Empowering Entrepreneurs
Lütke's enthusiasm for AI's role in aiding entrepreneurs and small businesses is apparent, as he envisions AI as a significant boost similar to the technological advancements from the industrial revolution.
Lütke Calls Ai an "Underhyped" Tech Boosting Entrepreneurs, Small Businesses
Tobi Lütke describes AI as remarkably transformative for entrepreneurs, capable of providing a "6 out of 10" level of expertise across various fields, which puts substantial resources at the fingertips of small businesses. He illustrates this by sharing stories of how AI has solved complex issues and has the ability to dedicate extensive amounts of time to tasks, thus providing strong support to individuals and small teams. With AI's help, entrepreneurs can accomplish much more than previously possible.
Shopify Integrates Ai Assistant Sidekick For Support and Automation
Lütke speaks about the implementation of AI in Shopify, emphasizing how the AI assistant called Sidekick is designed to help entrepreneurs. He mentions that Sidekick is there to provide patient, knowledgeable, and non-judgmental assistance, from running reports to guiding new entrepreneurs on starting a business. He describes Sidekick's capability to process a supplier's PDF and create a new collection of products in the Shopify store, showcasing how AI effectively serves as an extra team member, which is particularly advantageous for solo entrepreneurs.
The Democratization of Advanced Technologies
Shawn Ryan stresses the general optimism among those who understand AI, alluding to its potentially game-changing aspect in various sectors, including entrepreneurship.
Lütke Sees Ai's Openness As Beneficial for Entrepreneurship
Lütke conveys his optimism on the potential of AI in creativity and entrepreneurship. He views the technology as "mode ...
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Role of Ai in Future Entrepreneurship
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Clarifications
- Tobi Lütke is the co-founder and CEO of Shopify, a leading e-commerce platform that supports millions of entrepreneurs worldwide. His experience in building a successful tech company gives him insight into how technology like AI can impact entrepreneurship. Shopify's focus on empowering small businesses makes his views on AI particularly relevant. As a tech industry leader, his opinions influence trends and innovations in entrepreneurship.
- In this context, AI refers to computer systems designed to perform tasks that typically require human intelligence, such as understanding language, recognizing patterns, and making decisions. It includes technologies like machine learning, natural language processing, and computer vision. These AI systems can analyze data, automate repetitive tasks, and provide insights to support business decisions. The AI assistant Sidekick mentioned is an example of such technology applied to help entrepreneurs manage and grow their businesses.
- The "6 out of 10" level of expertise means AI can perform many tasks with above-average skill but not yet at expert human levels. AI achieves this by analyzing large amounts of data and patterns to provide useful insights and solutions. It automates routine or complex tasks, saving time and effort for entrepreneurs. This level of competence allows AI to support decision-making without fully replacing human judgment.
- Shopify is an e-commerce platform that allows individuals and businesses to create online stores easily. It provides tools for managing products, payments, and shipping without needing advanced technical skills. This accessibility helps entrepreneurs quickly start and grow their businesses online. Shopify's integration of AI tools like Sidekick further supports small business owners by automating tasks and providing expert guidance.
- An AI assistant like Sidekick uses machine learning and natural language processing to understand and respond to user requests. It automates repetitive tasks, such as data entry or report generation, saving time for entrepreneurs. It can analyze documents, like PDFs, to extract relevant information and perform actions based on that data. The assistant continuously learns from interactions to improve its accuracy and usefulness.
- Processing supplier PDFs means extracting product details like descriptions, prices, and images from documents suppliers send. Creating product collections in Shopify organizes these products into groups for easier browsing and marketing. Automating this saves entrepreneurs time and reduces errors compared to manual entry. This allows small businesses to quickly update their online stores and focus on growth.
- APIs (Application Programming Interfaces) are tools that allow different software programs to communicate and work together. Low-cost access to APIs means entrepreneurs can use advanced technologies without building them from scratch, saving time and money. This accessibility enables small businesses to innovate and compete with larger companies. Affordable APIs lower barriers, making powerful tech widely available.
- The industrial revolution was a period of major technological and e ...
Counterarguments
- AI may not be a panacea for all entrepreneurial challenges, as it cannot replace human creativity and critical decision-making skills.
- Over-reliance on AI could lead to a lack of skill development in entrepreneurs, who may become too dependent on technology for solutions.
- The "6 out of 10" level of expertise provided by AI may not be sufficient for highly specialized or complex tasks that require expert-level knowledge or human intuition.
- AI integration could potentially lead to job displacement, as tasks that were previously done by humans are automated.
- The democratization of AI could also lead to increased competition, making it harder for small businesses to stand out if everyone has access to the same advanced tools.
- There are ethical and privacy concerns related to AI that need to be addressed, such as data security and the potential for AI to be used in manipulative or harmful ways.
- AI's capabilities may be overstated, and there could be a gap between expectations and reality in terms of what AI can actually achieve for entrepreneurs.
- The accessibility of AI might not be uniform, as ...
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Work-Life Balance and Parenting as an Entrepreneur
Tobi Lütke, the CEO of Shopify, shares insights into how he manages the fine line between his professional responsibilities and his role as a parent, infusing entrepreneurial principles into the upbringing of his children.
Lütke's Approach To Balancing Work and Family
Lütke discusses the challenge of work and family, emphasizing a harmonious integration over the traditional concept of balance.
Lütke Values Family Time, Including Dinners and Activities With His Children
He loves his work but insists on having family dinners at 6 PM, a tradition his wife insists on maintaining. Lütke enjoys playing video games and engaging in various activities with his children, using his phone to remain present with his family while still being responsive to work as necessary.
Lütke Balances Shopify Problem-Solving With Being Present for His Family
Lütke has a policy where if his children approach him with a book and a question, he stops to answer, never treating any subject as a black box but rather explaining in-depth. This desire not to leave things unexplored reflects his approach to being present and actively involved in his children's learning processes.
Lütke's Efforts to Foster Entrepreneurship in Children
Lütke emphasizes the development of his children's creative and problem-solving abilities through practical, everyday activities.
Lütke Inspires Creativity in His Children By Having Them Modify Their Toys
He encourages his children to engage creatively with their toys, conceptualizing how they might redesign them. This practice aligns with his broader philosophy of looking at the world as a place that's open to change and improvement by those no smarter than his children.
Lütke Encourages His Children to Take Risks and Learn From Mistakes, Preparing Them For Entrepreneurship
Rather than giving an allowance, Lütke has his children pitch opportunities to earn, similar to negotiating a job or project, to teach them ...
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Work-Life Balance and Parenting as an Entrepreneur
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Counterarguments
- While Lütke's approach to integrating work and family life is commendable, it may not be feasible for all entrepreneurs, especially those in the early stages of their business or those without the same level of resources and support.
- The idea of being present with family while still being responsive to work through a phone can be seen as a double-edged sword, as it may lead to the blurring of boundaries between work and family time, potentially causing stress or a sense of never being fully 'off' work.
- Encouraging children to modify their toys and take risks is positive, but it's important to also teach them about safety, the value of some boundaries, and the importance of respecting the integrity of certain objects or systems.
- The practice of having children pitch for opportunities to earn money could inadvertently place too much emphasis on entrepreneurial values at a young age, potentially overshadowing other important childhood experiences and values.
- Lütke's method of fostering independence by having children research answers themselves is valuable, but it's also important to balance this with guided learning, especially for complex subjects where c ...
Actionables
- You can create a "family project hour" where everyone works on their own projects or hobbies in the same room, blending personal interests with family togetherness. This approach allows you to be physically present and available for interaction while fostering a shared space for individual growth and creativity, similar to how playing video games together can be both a personal interest and a bonding activity.
- Develop a "challenge jar" filled with random tasks or problems that encourage creative thinking and resilience, which family members can draw from weekly. This could range from building a simple machine to solve a household problem to devising a plan to save water. It's a tangible way to introduce problem-solving and entrepreneurial thinking into everyday life, akin to encouraging children to pitch ideas for earnin ...
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