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If you were starting a small business with <10K startup capital... (2 Viewers)

Dudley Do-Right

Footballguy
... what is your big idea?

No real restrictions on this. It can be full-time, part-time, day or night, internet or otherwise. Just interested in the collective FBG entrepreneurial mindset in 2014. :moneybag: :2cents:

 
I had a really long post written and then left my computer for a while and it got gobbled up by the Picklesnet. Grr..

Anyway, I've started a lot of businesses and most of them failed. But along the way, most of them were successful for at least some period of time and I was able to extract valuable lessons. If/when I start another business, it will follow these rules (in order of importance).

1. Residual income vs. one time. My "biggest" business endeavor averaged 100k gross each month. And on the first day of the next month, we'd be back to zero and start clawing again. Predictable sales, expenses, and cash flows are the best gifts you can give yourself when starting a business. Find something where customers pay you regularly for something instead of one-off sales.

2. Cash on the barrelhead - COD, prepayment, credit card, brown bag full of 20's....the faster you can get paid the better. Giving credit terms not only impacts your cash flow, it creates more work on the administrative end. "Invoice due on receipt" is your new favorite phrase.

3. Service, not product - Selling products means having to buy or make products to sell which means giving up part of your cash to facilitate a future transaction. It also means you are competing on features and price, which are both awful things to compete on because someone else can always come along and be less expensive or offer more features. Sell a service, an expertise, a time savings. If you sell products as part of that ("Bacon of the Month Club" subscriptions) fine, but you have to deliver more than just products or you will go broke.

4. Enterprise, not consumer. Consumers are cheap and require a ton of service/support. Conversely, businesses are not averse to spending money on things. Furthermore, the person signing the contract/PO is likely spending someone else's money so they aren't as likely to beat you up on price. Also, business offerings typically cost more than consumer offerings so your average sale/contract is likely to be higher than something comparable on the consumer side.

5. Proven market - Competition is a good thing because it means your business/idea has a market. But you need to make sure the market has some money in it. There is no money in social networking, for example. There is a lot of money in advertising, and social networking is a good vehicle for advertising. But Facebook has a billion users because it's free to use. Saying, "I'm going to make a version of Facebook with no advertising but charge $1/month per user!" is a terrible idea because you have no idea if that is a proven market.

6. Reasonable scalability. The business needs to be able to grow. Let's assume your $10k can generate 10% EBITA per month (reasonable if you pick the right business). You need to pick something that will generate AT LEAST 10% EBITA per month for every dollar you reinvest. For example, if you take your $10k and look up in 6 months and you've profited $6k (10%/month for half a year) and still have your original 10k, then you need to confident that any money added will result in growth that is accelerating, not contracting.

So, what business fits all these models and can be started for under $10k?

Commercial Landscaping.

Recurring revenue - check. They sign a contract for you to mow/edge/whatever each week or every two weeks or whatever.

Cash only - probably not, but you can invoice once a month (for example) and refuse to mow if they owe you money. So you have a little leverage.

Service, not product - Yup.

Enterprise, not consumer - yup. You can charge Ms. Smith $40/week to mow and edge her lawn or you can charge the property manager at the business park up the road $400/month for the same service. He'll just build it in to the "condo fees" so it's no skin off his teeth. And the work isn't any more substantial.

Proven Market - absolutely. The grass will grow and it will need to be cut.

Scaleable - sure thing. Let's say you can charge $400/month to maintain a commercial property by mowing/edging once each week between March and the end of October. You can reasonably mow/edge two properties per day. Once you have 10 properties under contract, you are grossing $4k a month with your only expenses being gas/maintenance of the equipment you bought with your $10k. Signing up contract number 11 means you need another crew. No problem, you hire someone to take over the first 10 accounts and you take over 11 and build until there are 20. Hire someone to take over accounts 11-20. Rinse and repeat. What, you don't think you can find someone to mow lawns for a wage that, when combined with expenses, doesn't exceed $3600/month? Yes, yes you can.

So, there you have it. :coffee:

 
So, mowing lawns.
:yes: Not exciting, but with modest startup funds (i.e. not enough to hire a staff or develop/create anything interesting or useful) it fits all the major requirements for a small business that won't make you want to jump off a bridge.

 
What the really long post that got gobbled about mowing lawns too? That one was about cell phones, right?

 
I had a really long post written and then left my computer for a while and it got gobbled up by the Picklesnet. Grr..

Anyway, I've started a lot of businesses and most of them failed. But along the way, most of them were successful for at least some period of time and I was able to extract valuable lessons. If/when I start another business, it will follow these rules (in order of importance).

1. Residual income vs. one time. My "biggest" business endeavor averaged 100k gross each month. And on the first day of the next month, we'd be back to zero and start clawing again. Predictable sales, expenses, and cash flows are the best gifts you can give yourself when starting a business. Find something where customers pay you regularly for something instead of one-off sales.

2. Cash on the barrelhead - COD, prepayment, credit card, brown bag full of 20's....the faster you can get paid the better. Giving credit terms not only impacts your cash flow, it creates more work on the administrative end. "Invoice due on receipt" is your new favorite phrase.

3. Service, not product - Selling products means having to buy or make products to sell which means giving up part of your cash to facilitate a future transaction. It also means you are competing on features and price, which are both awful things to compete on because someone else can always come along and be less expensive or offer more features. Sell a service, an expertise, a time savings. If you sell products as part of that ("Bacon of the Month Club" subscriptions) fine, but you have to deliver more than just products or you will go broke.

4. Enterprise, not consumer. Consumers are cheap and require a ton of service/support. Conversely, businesses are not averse to spending money on things. Furthermore, the person signing the contract/PO is likely spending someone else's money so they aren't as likely to beat you up on price. Also, business offerings typically cost more than consumer offerings so your average sale/contract is likely to be higher than something comparable on the consumer side.

5. Proven market - Competition is a good thing because it means your business/idea has a market. But you need to make sure the market has some money in it. There is no money in social networking, for example. There is a lot of money in advertising, and social networking is a good vehicle for advertising. But Facebook has a billion users because it's free to use. Saying, "I'm going to make a version of Facebook with no advertising but charge $1/month per user!" is a terrible idea because you have no idea if that is a proven market.

6. Reasonable scalability. The business needs to be able to grow. Let's assume your $10k can generate 10% EBITA per month (reasonable if you pick the right business). You need to pick something that will generate AT LEAST 10% EBITA per month for every dollar you reinvest. For example, if you take your $10k and look up in 6 months and you've profited $6k (10%/month for half a year) and still have your original 10k, then you need to confident that any money added will result in growth that is accelerating, not contracting.

So, what business fits all these models and can be started for under $10k?

Commercial Landscaping.

Recurring revenue - check. They sign a contract for you to mow/edge/whatever each week or every two weeks or whatever.

Cash only - probably not, but you can invoice once a month (for example) and refuse to mow if they owe you money. So you have a little leverage.

Service, not product - Yup.

Enterprise, not consumer - yup. You can charge Ms. Smith $40/week to mow and edge her lawn or you can charge the property manager at the business park up the road $400/month for the same service. He'll just build it in to the "condo fees" so it's no skin off his teeth. And the work isn't any more substantial.

Proven Market - absolutely. The grass will grow and it will need to be cut.

Scaleable - sure thing. Let's say you can charge $400/month to maintain a commercial property by mowing/edging once each week between March and the end of October. You can reasonably mow/edge two properties per day. Once you have 10 properties under contract, you are grossing $4k a month with your only expenses being gas/maintenance of the equipment you bought with your $10k. Signing up contract number 11 means you need another crew. No problem, you hire someone to take over the first 10 accounts and you take over 11 and build until there are 20. Hire someone to take over accounts 11-20. Rinse and repeat. What, you don't think you can find someone to mow lawns for a wage that, when combined with expenses, doesn't exceed $3600/month? Yes, yes you can.

So, there you have it. :coffee:
Don't the low barriers to entry make the competition pretty fierce... and how do you break in? Knock on doors? Send emails? I don't think it's a bad idea, just curious on some of these. The scaleable thing isn't too great here. A new truck and equipment for an additional crew isn't cheap. There is some scalability, but not a lot IMO.

 
I had a really long post written and then left my computer for a while and it got gobbled up by the Picklesnet. Grr..

Anyway, I've started a lot of businesses and most of them failed. But along the way, most of them were successful for at least some period of time and I was able to extract valuable lessons. If/when I start another business, it will follow these rules (in order of importance).

1. Residual income vs. one time. My "biggest" business endeavor averaged 100k gross each month. And on the first day of the next month, we'd be back to zero and start clawing again. Predictable sales, expenses, and cash flows are the best gifts you can give yourself when starting a business. Find something where customers pay you regularly for something instead of one-off sales.

2. Cash on the barrelhead - COD, prepayment, credit card, brown bag full of 20's....the faster you can get paid the better. Giving credit terms not only impacts your cash flow, it creates more work on the administrative end. "Invoice due on receipt" is your new favorite phrase.

3. Service, not product - Selling products means having to buy or make products to sell which means giving up part of your cash to facilitate a future transaction. It also means you are competing on features and price, which are both awful things to compete on because someone else can always come along and be less expensive or offer more features. Sell a service, an expertise, a time savings. If you sell products as part of that ("Bacon of the Month Club" subscriptions) fine, but you have to deliver more than just products or you will go broke.

4. Enterprise, not consumer. Consumers are cheap and require a ton of service/support. Conversely, businesses are not averse to spending money on things. Furthermore, the person signing the contract/PO is likely spending someone else's money so they aren't as likely to beat you up on price. Also, business offerings typically cost more than consumer offerings so your average sale/contract is likely to be higher than something comparable on the consumer side.

5. Proven market - Competition is a good thing because it means your business/idea has a market. But you need to make sure the market has some money in it. There is no money in social networking, for example. There is a lot of money in advertising, and social networking is a good vehicle for advertising. But Facebook has a billion users because it's free to use. Saying, "I'm going to make a version of Facebook with no advertising but charge $1/month per user!" is a terrible idea because you have no idea if that is a proven market.

6. Reasonable scalability. The business needs to be able to grow. Let's assume your $10k can generate 10% EBITA per month (reasonable if you pick the right business). You need to pick something that will generate AT LEAST 10% EBITA per month for every dollar you reinvest. For example, if you take your $10k and look up in 6 months and you've profited $6k (10%/month for half a year) and still have your original 10k, then you need to confident that any money added will result in growth that is accelerating, not contracting.

So, what business fits all these models and can be started for under $10k?

Commercial Landscaping.

Recurring revenue - check. They sign a contract for you to mow/edge/whatever each week or every two weeks or whatever.

Cash only - probably not, but you can invoice once a month (for example) and refuse to mow if they owe you money. So you have a little leverage.

Service, not product - Yup.

Enterprise, not consumer - yup. You can charge Ms. Smith $40/week to mow and edge her lawn or you can charge the property manager at the business park up the road $400/month for the same service. He'll just build it in to the "condo fees" so it's no skin off his teeth. And the work isn't any more substantial.

Proven Market - absolutely. The grass will grow and it will need to be cut.

Scaleable - sure thing. Let's say you can charge $400/month to maintain a commercial property by mowing/edging once each week between March and the end of October. You can reasonably mow/edge two properties per day. Once you have 10 properties under contract, you are grossing $4k a month with your only expenses being gas/maintenance of the equipment you bought with your $10k. Signing up contract number 11 means you need another crew. No problem, you hire someone to take over the first 10 accounts and you take over 11 and build until there are 20. Hire someone to take over accounts 11-20. Rinse and repeat. What, you don't think you can find someone to mow lawns for a wage that, when combined with expenses, doesn't exceed $3600/month? Yes, yes you can.

So, there you have it. :coffee:
Don't the low barriers to entry make the competition pretty fierce... and how do you break in? Knock on doors? Send emails? I don't think it's a bad idea, just curious on some of these. The scaleable thing isn't too great here. A new truck and equipment for an additional crew isn't cheap. There is some scalability, but not a lot IMO.
So if you give over accounts 1-10 and are paying someone to do them, you just lost 90% of your profit and now only have the 10% plus #11 on your own. The ability to gain new business is unlikely to be that easy where 12-20 are locked and loaded.

 
Wow.

At my last company, one of the transactions I handled was to sell off our worst business unit, the one that had gone off a cliff, driving our results down so far that we had to delay our IPO. That business? Our commercial landscaping business.

 
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Wow.

At my last company, one of the transactions I handled was to sell off our worst business unit, the one that had gone off a cliff, driving our results down so far that we had to delay our IPO. That business? Our commercial landscaping business.
Any chance you sold it for &lt;$10k?

 
I had a really long post written and then left my computer for a while and it got gobbled up by the Picklesnet. Grr..

Anyway, I've started a lot of businesses and most of them failed. But along the way, most of them were successful for at least some period of time and I was able to extract valuable lessons. If/when I start another business, it will follow these rules (in order of importance).

1. Residual income vs. one time. My "biggest" business endeavor averaged 100k gross each month. And on the first day of the next month, we'd be back to zero and start clawing again. Predictable sales, expenses, and cash flows are the best gifts you can give yourself when starting a business. Find something where customers pay you regularly for something instead of one-off sales.

2. Cash on the barrelhead - COD, prepayment, credit card, brown bag full of 20's....the faster you can get paid the better. Giving credit terms not only impacts your cash flow, it creates more work on the administrative end. "Invoice due on receipt" is your new favorite phrase.

3. Service, not product - Selling products means having to buy or make products to sell which means giving up part of your cash to facilitate a future transaction. It also means you are competing on features and price, which are both awful things to compete on because someone else can always come along and be less expensive or offer more features. Sell a service, an expertise, a time savings. If you sell products as part of that ("Bacon of the Month Club" subscriptions) fine, but you have to deliver more than just products or you will go broke.

4. Enterprise, not consumer. Consumers are cheap and require a ton of service/support. Conversely, businesses are not averse to spending money on things. Furthermore, the person signing the contract/PO is likely spending someone else's money so they aren't as likely to beat you up on price. Also, business offerings typically cost more than consumer offerings so your average sale/contract is likely to be higher than something comparable on the consumer side.

5. Proven market - Competition is a good thing because it means your business/idea has a market. But you need to make sure the market has some money in it. There is no money in social networking, for example. There is a lot of money in advertising, and social networking is a good vehicle for advertising. But Facebook has a billion users because it's free to use. Saying, "I'm going to make a version of Facebook with no advertising but charge $1/month per user!" is a terrible idea because you have no idea if that is a proven market.

6. Reasonable scalability. The business needs to be able to grow. Let's assume your $10k can generate 10% EBITA per month (reasonable if you pick the right business). You need to pick something that will generate AT LEAST 10% EBITA per month for every dollar you reinvest. For example, if you take your $10k and look up in 6 months and you've profited $6k (10%/month for half a year) and still have your original 10k, then you need to confident that any money added will result in growth that is accelerating, not contracting.

So, what business fits all these models and can be started for under $10k?

Commercial Landscaping.

Recurring revenue - check. They sign a contract for you to mow/edge/whatever each week or every two weeks or whatever.

Cash only - probably not, but you can invoice once a month (for example) and refuse to mow if they owe you money. So you have a little leverage.

Service, not product - Yup.

Enterprise, not consumer - yup. You can charge Ms. Smith $40/week to mow and edge her lawn or you can charge the property manager at the business park up the road $400/month for the same service. He'll just build it in to the "condo fees" so it's no skin off his teeth. And the work isn't any more substantial.

Proven Market - absolutely. The grass will grow and it will need to be cut.

Scaleable - sure thing. Let's say you can charge $400/month to maintain a commercial property by mowing/edging once each week between March and the end of October. You can reasonably mow/edge two properties per day. Once you have 10 properties under contract, you are grossing $4k a month with your only expenses being gas/maintenance of the equipment you bought with your $10k. Signing up contract number 11 means you need another crew. No problem, you hire someone to take over the first 10 accounts and you take over 11 and build until there are 20. Hire someone to take over accounts 11-20. Rinse and repeat. What, you don't think you can find someone to mow lawns for a wage that, when combined with expenses, doesn't exceed $3600/month? Yes, yes you can.

So, there you have it. :coffee:
Don't the low barriers to entry make the competition pretty fierce... and how do you break in? Knock on doors? Send emails? I don't think it's a bad idea, just curious on some of these. The scaleable thing isn't too great here. A new truck and equipment for an additional crew isn't cheap. There is some scalability, but not a lot IMO.
Competition is incredibly fierce and it can be very hard for the mom &amp; pops to compete with the three dominant players in this market. In addition, the business is heavily regulated by federal, state and local environmental authorities and OSHA/DOT (lots of injuries in this business) as well as heavy regulation in the marketing arena (do-not-call and do-not-leave laws and such), which can make it difficult to get this off the ground, assuming you want to comply with laws. Changes in immigration laws are a huge issue for this business, as was evidenced by the H2B debacle a few years ago. Litigation costs can also be a significant issue.

This business is heavily IT dependent if you wish to be successful as it takes great routing/scheduling software to gain efficiencies, if you are talking about having a business of any size.

The business, as you would imagine, is highly seasonal and also very weather-dependent. Droughts in recent years caused a lot of these businesses not to survive.

Just a few items off the top of my head.

 
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One more very important one I forgot...highly dependent upon the economy as you don't make the money in this business from mowing (extremely low margins) but from "enhancements" like planting flowers, etc. In an economic downturn, these enhancements are the first thing that commercial enterprises think they can cut.

 
Before everyone jumps all over Abe; he's working with $10k here. While the "landscaping" result might not be mindblowing, his post was pretty good in terms of what to look for.

WRT landcaping, I pay a guy $2k/year to cut, edge and bag my grass (approximately .25 acres in a residential area of a city). I'm one contract that covers 20% of the capital investment. I've watched this guy work...he's got one other guy he works with (I'm sure he pays him $10/hr) and they knock it out in less than an hour. The owner takes home $40/hr give or take. Not too bad if you can build up some clientele.

 
Before everyone jumps all over Abe; he's working with $10k here. While the "landscaping" result might not be mindblowing, his post was pretty good in terms of what to look for.

WRT landcaping, I pay a guy $2k/year to cut, edge and bag my grass (approximately .25 acres in a residential area of a city). I'm one contract that covers 20% of the capital investment. I've watched this guy work...he's got one other guy he works with (I'm sure he pays him $10/hr) and they knock it out in less than an hour. The owner takes home $40/hr give or take. Not too bad if you can build up some clientele.
Abe referenced commercial landscaping.

 
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Abe's points are great. I will piggy back off of the trades/physical labor idea a bit. Most contractors I've worked with suck at customer service, organization, communication and marketing. Really, it's a fragmented industry with lots of room for someone with a marketing/process/people bent. Guys that start contracting or trade businesses are usually great at the work, bad at business. Yet the market need is always there.

Find a good contractor, invest and run the business end, let them run the work end. Show a high level of service, clear communication, transparent pricing and as the 'business guy' be present at the larger contract jobs once in a while.

This is true of many local businesses that are highly fragmented. Some of them have been over franchised though (hair care, dog grooming etc). There are a few trade-based franchises but on the whole, it's still highly under-managed.

 
Before everyone jumps all over Abe; he's working with $10k here. While the "landscaping" result might not be mindblowing, his post was pretty good in terms of what to look for.

WRT landcaping, I pay a guy $2k/year to cut, edge and bag my grass (approximately .25 acres in a residential area of a city). I'm one contract that covers 20% of the capital investment. I've watched this guy work...he's got one other guy he works with (I'm sure he pays him $10/hr) and they knock it out in less than an hour. The owner takes home $40/hr give or take. Not too bad if you can build up some clientele.
Abe referenced commercial landscaping, though many of the same issues would apply to residential.
FWIW - I know two guys that started residential landscaping businesses (mowing lawns) because they couldn't finish college. Both are quite successful (guessing 300k-400k+ net per year). But they worked their asses off for years and built up a reliable client base. Neither one does any of the physical labor any more, but it took a long time to get to this point.

In short, like most things it can be done, but it takes a lot of time and work to get it going.

 
Abraham's suggestion is a good one for someone without some kind of expertise and a small amount of capital. Landscaping is a HUGE market. Regardless of whether you target commercial or residential, there will never be a shortage of potential customers. It's the type of business you can make work purely on effort. If you make enough cold calls or knock on enough doors you will line up business. Any reasonably competent person can make a lawn service company work.

Once your lawn service is established, you can start branching out into professional landscaping services and landscape design services. In the winter you can provide snow removal. It's not a bad business idea at all.

 
One thing that would be absolutely scalable would be some sort of data compiling for economic reports or research reports, etc. For example, I track various economic figures as part of my job and create some economic reports and I've often wondered if there was a market for selling these reports I create. Even if it's just for $10 each, I could sell 1 or 1000 and my cost is essentially the same. Maybe I need to get started.

 
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1. Residual income vs. one time.

2. Cash on the barrelhead.

3. Service, not product.

4. Enterprise, not consumer.

5. Proven market.

6. Reasonable scalability.
This is really a great list. Assuming you aren't including salaries, IT consulting in the SMB market fits all of these criteria. Finding new clients is difficult, but once you have them, you really have to screw something up for them to leave.

 
Abraham's suggestion is a good one for someone without some kind of expertise and a small amount of capital. Landscaping is a HUGE market. Regardless of whether you target commercial or residential, there will never be a shortage of potential customers. It's the type of business you can make work purely on effort. If you make enough cold calls or knock on enough doors you will line up business. Any reasonably competent person can make a lawn service company work.

Once your lawn service is established, you can start branching out into professional landscaping services and landscape design services. In the winter you can provide snow removal. It's not a bad business idea at all.
I liked Abe's list of criteria but not his conclusion. I do think this is more do-able in residential. In commercial you have a lot of transportation and staffing issues to deal with that aren't there so much on residential. You also will have a HELL of a time getting your foot in the door in commercial rather than residential. The RFP requirements in commercial are extremely difficult for a small shop to meet, and more and more commercial customers are going for one-stop shopping not only for their locations nationwide, but also for various services--i.e., they want one company to give them janitorial, pest services, landscaping etc. (mostly these are handled by subcontracting, which a little guy won't be able to do very well).

The company I sold did snow removal, too, which was a big issue in terms of the weather variability. A few years ago they just ended up with tons and tons of snow-melt inventory on hand for a couple of years straight, which you can't avoid unless you are a groundhog.

 
Don't the low barriers to entry make the competition pretty fierce... and how do you break in? Knock on doors? Send emails? I don't think it's a bad idea, just curious on some of these. The scaleable thing isn't too great here. A new truck and equipment for an additional crew isn't cheap. There is some scalability, but not a lot IMO.
The best "how to start a business" advice I know came from James Altucher, who has a fantastic blog about business and self improvement. He states (and I agree) that the best way to start a business to have a customer. Of course the competition is fierce in this business, but the question wasn't so much about sales and marketing. I'd think that finding a customer - a real estate agency needing someone to maintain lawns at homes on the market or an HOA with grounds to maintain - would be the right place to start. From there, I suspect that building the business's customer base would be much the same as every other business: word of mouth, advertising, sales teams, etc.

What if you were starting a business with $100k? Any better ideas?

This landscaping thing isn't for me.
Lots of better ideas. 100k is enough to pay people whereas 10k is not.

So if you give over accounts 1-10 and are paying someone to do them, you just lost 90% of your profit and now only have the 10% plus #11 on your own. The ability to gain new business is unlikely to be that easy where 12-20 are locked and loaded.
Why would gaining new business be harder? Over time, a growing reputation and word of mouth power new business in a way that wasn't happening on the first few accounts.

 
Before everyone jumps all over Abe; he's working with $10k here. While the "landscaping" result might not be mindblowing, his post was pretty good in terms of what to look for.

WRT landcaping, I pay a guy $2k/year to cut, edge and bag my grass (approximately .25 acres in a residential area of a city). I'm one contract that covers 20% of the capital investment. I've watched this guy work...he's got one other guy he works with (I'm sure he pays him $10/hr) and they knock it out in less than an hour. The owner takes home $40/hr give or take. Not too bad if you can build up some clientele.
Abe referenced commercial landscaping, though many of the same issues would apply to residential.
FWIW - I know two guys that started residential landscaping businesses (mowing lawns) because they couldn't finish college. Both are quite successful (guessing 300k-400k+ net per year). But they worked their asses off for years and built up a reliable client base. Neither one does any of the physical labor any more, but it took a long time to get to this point.

In short, like most things it can be done, but it takes a lot of time and work to get it going.
I think if you change "commercial" to "residential" the idea has some merit.

 

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