Author Topic: Business opportunity - to do or not?  (Read 2109 times)

caracarn

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Business opportunity - to do or not?
« on: June 29, 2018, 11:56:34 AM »
I have been highly intrigued with the new opportunity from Amazon announced yesterday to startup your own logistics company for minimal upfront startup.  I'm in the application process, likely to finish tonight, but curious is anyone else has been looking into this and thoughts from like minded financial folks.

I'd like to get our of the employed gig and move to self employed.  The company I am with now gives me a lot of visibility to Amazon and their processes and so I feel I have an understanding of the fact that even though they provide the technology there will be some hiccups and it is not all perfect as their marketing material makes it seem.  I've examined various franchise opportunities over the last couple decades and never pulled the trigger.  Two main reasons were the upfront costs and capital needed, which would have been a struggle to meet and the fact that most were running fast food places which has almost zero interest for me.  Handling personnel for delivery of an almost guaranteed stream of packages (unless Amazon suddenly stops to exist) and the support staff needed for that with $10-$30K needed to get going and revenue coming in very quickly seems like a nice way to make the leap I've been looking for.  I feel I have the leadership skills to make this work and I see a lot of potential for Amazon expanding (I could see them using these partners for grocery delivery leveraging their Whole Foods acquisition as a possible source).  Obviously I need to look at all the details as I get further into the process, but what they expose initially makes it seem as close to a sure things for any semi-intelligent and competent leader to make work.  That is also what scares me a bit, the old "if it's too good to be true, it probably is", which is why I'm asking the question here.
« Last Edit: June 29, 2018, 02:47:55 PM by caracarn »

bwall

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Re: Business opportunity - to do or not?
« Reply #1 on: June 29, 2018, 06:11:09 PM »
Amazon makes money the same way Walmart does; outsourcing, squeezing profits margins and low pay. Which category does logistics fall in?

If you earn good money, they will notice this by the abundance of applicants and change the fee schedule so that the money is no longer as good, thus forcing out the least efficient operators and squeezing the margins of those remaining. Is this the space you want to compete in? How will you be better than the competition?

The question you need to ask yourself: Why doesn't Amazon do it themselves? They have the resources available and/or can organize the resources, but they choose not to do it. Why?

tralfamadorian

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Re: Business opportunity - to do or not?
« Reply #2 on: June 29, 2018, 07:41:02 PM »
Amazon is well known for taking the cream. The 80/20 rule, etc. For example, when a product with an excellent profit margin sells extremely well, they go direct to the manufacturers and try to work out an exclusive with an even better wholesale price for themselves, highjacking the listing and all the work other sellers have done to make it a top seller.

Similar to @bwall 's questions raised above, I would ask myself why Amazon has decided that fulfillment is no longer the cream? All the warehouses and employees needed? Their policy of eating the cost of the many, many, "lost" packages taking too big of a chunk and they want to pass that headache to someone else?

caracarn

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Re: Business opportunity - to do or not?
« Reply #3 on: July 02, 2018, 04:33:36 AM »
These are all good points and certainly ones I've begun considering.

Here is my understanding thus far.  Please challenge my input here as my goal is to vet this opportunity like anything else.  My wife and I have looked at things like franchises for Subway and McDonald's in the past.  Two things have kept us from take the step to move forward.  The first was no understanding and very little interest in getting intimately familiar with the fast food industry workings.  The second was the high upfront investment of a franchise, well over $100,000 in each case.  Both of these are changed for us in this opportunity.  I have been involved in supply chain work for several decades, not to the extent we would be here, but enough that I feel much more informed.  It remains to be seen if I get past the initial application, what the cost structure really looks like.  As presented $10,000 - $30,000 is much less risk than $100,000 plus.

They are not eliminating warehousing, and they have never had last mile delivery in their control it was always outsourced.  Their packages were delivered by third parties like UPS, FedEx and USPS.

I currently work for an FBA seller that does very, very well on Amazon.  I am very familiar with their policies, however, I do not view them with quite as much trepidation as those not given a view into that space.  Have Amazon fees gone up for us?  Certainly.  Do we have to fight for the buy box?  Yes.   We are not reselling others products on Amazon, we are selling our own, so there is less chance of Amazon circumventing us by going direct, because that is us.  We have products with massive demand, and in the end Amazon is a marketplace, not a manufacturer, and they will sell what sells, like any retailer.  With all this however, there is room for profit when run well.  The statement about driving costs down is true, but not sure how it is different for any other business.  I'm not sure that this is a uniqueness to Amazon, and I understand we'd be operating on thin margins, but they are certainly thicker than most other alternatives that do not involve a full startup from scratch with a much, much higher likelihood of failure.   This appears to be a franchise-like opportunity without the overhead of franchise fees.  A big part of the turn off was the high rate of annual payment to a Subway and McDonald's because of the new products they provide, advertising etc.  Again, I am not foolish and do not believe that I will see no payment to Amazon for the use of their space (it appears that our offices will be in their DCs) and their operational system usage (all software for routing and scheduling is theirs), but unless they are totally misrepresenting the model, which should be glaringly apparent once I get to see detailed financial information about individual costs, it will be a low amount.

I have a family member who has worked for UPS for decades and I spoke with him this weekend.  I have talked with some other folks as well and several of us are considering the opportunity.  Logistics is the biggest headache for Amazon and I am sure is one of the reasons they are looking to have someone else take it over.  They have less control over UPS and FedEx etc. than they will over a direct partner network.  I am sure there are going to be clauses in the contracts that limit or eliminate my ability to say, use my trucks to deliver packages from someone other than Amazon to try to increase my revenue and profits.  I am sure there will be penalties for lost packages (pilfered), missed delivery windows etc.  I would expect nothing less of a company than to squeeze margins.  I do the same thing to my vendors, and our customers do it to us.  We work with both Walmart and Amazon, and we make profit on both.  Capitalism does not work without that as if they squeezed all the margin out everyone would leave the business, but it would be poor business on Amazon's part not to look for savings.

I am currently making a lot of assumptions about what I think is the model and the reasoning for this action.  I will vet the reality against my assumptions as I get a vision to that reality.  One discussion that has come up again and again that no one has been able to refute yet is a key difference in this model and information that is already available in the literature presented for consideration.  Amazon is requiring partners to use Amazon branded vans and personnel will wear uniforms with Amazon's name on them.  In short, they present as Amazon employees and equipment to the final customer.  My grandmother will have no idea that it is an independent partner who employs that person handing her her beloved packages with stuff she's looking out the window to get.  She'll have no idea that that van is not in Amazon's fleet.  She'll associate her entire experience good or bad and tie it to Amazon.  As such, Amazon's reputation is on the line in a much different and tighter way than it is with UPS or any other third party.   If a UPS driver damages a package, is rude, does not meet expectations etc. Amazon still might get the call, but they can blame another company that is clearly involved.  This is harder in this model.  Sure you can say it is a partner, but you (Amazon) have chosen to allow then to use your name directly and appear as a direct part of their model, so they are on the hook.  I feel this makes them less likely to be completely unfair in their practices.  Amazon has a vested interest in these partners doing well and being happy as it will directly impact their brand reputation, and if Bezos values anything above all else, it is what people think of Amazon.  As I said above, I'm open to any feedback to consider here, but I think this is a crucial differentiation versus just being a logistics company that delivers Amazon packages.

Amazon does not do it themselves because this business is a headache.  I have to hire and retain good drivers.  I have to deal with all the unknowns like broken down vehicles, drivers calling in sick or quitting the week of Christmas, traffic snafus that delay my trucks, etc.  Why invest in all the personnel required to build this out yourself when you can basically "hire" a bunch of hungry managers, who have an equity stake in their little piece of the pie, so figure out the best way to deal with this and offload that?  I think Amazon is making this decision for the same reason any business does.  They are not a logistics company, nor do they have any interest in being that.  I am not a payroll company now.  I do not create my own payroll software and hire people for that, I outsource that to ADP.  Does that mean ADP is stupid for taking my business?  After all, why do I not do it all myself; deal with all the taxing authorities, stay up on all the regs and do everything else?  Because it is not my core competency.  I'm not seeing any unique level of sinister here.  I see a clear way for Amazon to get more control over their supply chain with partners who they can regulate (yes, I get that can be a pain, but so can any business) while avoiding developing an expertise here in a service they do not sell, that they just utilize.  They are not likely to start making their own electricity anytime soon either.  This is truly not that different of a decision.  Amazon never felt fulfillment was the cream.  It was always their biggest headache.  They do not have the resources, they'd have to build them out just like they are going to have partners do.  If I can contract thousands of partners to build little 20-40 truck "empires" versus trying to build out and manage and maintain the tens of thousands of vehicles this will be, why would I do that internally?  As a professional project manager, I can clearly see the vast scale difference.

sokoloff

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Re: Business opportunity - to do or not?
« Reply #4 on: July 02, 2018, 06:51:24 AM »
The way I see it is you’re taking the risk (money, but much more importantly, time) and ending up with something that has limited upside and therefore terminal value.

Amazon will always have the upper hand in this relationship. (I tend to think they are a logistics company in part. They own airplanes and an airport as part of their network.)

For me, taking the risk of entrepreneurship is specifically for the possibility of large upside, not for just a steady flow of income for a while as long as I work hard. This opportunity seems to offer a lot of the latter and basically none of the former, which makes it not a fit for me. You seem to have thought in detail about this and, so long as you want the payoff profile of this deal, go for it.

caracarn

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Re: Business opportunity - to do or not?
« Reply #5 on: July 02, 2018, 07:26:46 AM »
I appreciate that perspective.

I certainly am looking at this less as the unlimited upside of a true entrepreneurial endeavor and more a "finish up working my own terms before I get to FIRE".  As such I am evaluating it as an income replacement option, not as much more than that.  Can I make an acceptable amount to get me to FIRE in the next 10 years versus spending it in an office where I get berated for things our of my control with little upside of it.

I did note what you said in my conversations.  One of my questions I will have if this proceeds is does Amazon cap each partner at 40 trucks.  What if I feel like we are killing it and want to expand to 60 or 100 trucks?  Will they not let me, inevitably capping this opportunity?  In my case I's still likely be OK with that, as I'm OK with the concept of "enough", one that I have found not many people understand or share.  I'm OK making what I need to in a given year and not much more.  Would I turn down more money?  Of course not, but for me I would turn down more money if it inherently came with more headaches.  It''s honestly where I am at now and why when this appeared the timing was fortuitous to peak my interest.  When I was looking for a job change one decision I had made was to take a lower individual contributor position to get out of the mess of department management.  The only reason I took this opportunity and stayed in management was that this company offered a very different culture and had less of the issues I hated.  However after only 18 months the owner decided to bring in the first ever CEO and we have become very corporate with almost all the things I hated now back on my plate.  It found me longing to have taken the individual contributor job that I had also been offered for 40% less, but still "enough", and just having to do my work and go home and enjoy my family.  So yes, I'm not looking for something that I can have unlimited upside.  You've pegged my mindset well.  To me it would still be a job, just one that I had total, or at least much more control of the culture and only the client could "fire" me.  And I would agree with your assessment as I do think it will offer a steady flow of income for work, and almost zero chance to take it beyond that into something else. 

The logistics that Amazon handles and I think it sees as inevitable to keep at those that use their airplanes to move product among their own facilities.  They are doing intercompany transfers.  They are not a logistics company to the end customer.  Those planes are not moving product to my house.  They are just realigning inventory due to aggregate demand they are seeing in the marketplace.  The compete more with UPS than they do anything similar to what these partners will do.

trollwithamustache

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Re: Business opportunity - to do or not?
« Reply #6 on: July 02, 2018, 09:19:08 AM »
what kind of capital investment are you talking about initially?  My casual observation of various "gig" economy things like VBRO/Lift ect is a bunch of people without a plan don't do very well. But, those with a plan (that gets reviewed/updated periodically as to how they go about it) seem to do OK.

So, no or low capital investment would be low risk.

The truck cap worries me, if they want to keep you from getting big enough to dictate terms back to them...

caracarn

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Re: Business opportunity - to do or not?
« Reply #7 on: July 02, 2018, 09:49:46 AM »
From what I understand the "capital" is all the startup costs as you begin and grow.  You do not buy the trucks, you lease them.  I believe that may be the same with the mobile devices.  This keeps the outlay low, but yes when you would go to sell the company to someone, you are valued on the revenue stream alone it would seem.  In that regard it is really about how much profit you can pull out of it as you go, which they estimate at between $75K and $300K against 1-4.5MM in revenue.  It concerns me that even their estimates show a lower margin as you grow.  There may be something built in there because they assume you'll hire some people to deal with the volume of things or to specialize.  For example with around 100 employees you may start adding HR types who handle the recruiting and payroll. 

They pay out at three levels, fixed payment per vehicle, payment based on route length (so sounds like a mileage payment) and payment per package delivered.  They do not provide any details on the website on what those are in actual dollars, but this is the stuff I will need to see before I would pull the trigger.

At this point it says it will take 2-4 weeks to get a decision so expecting to hear back before the end of the month.  Just trying to keep conversations going over that time to kick the tires as much as possible.

My biggest issue is I did spend some time looking at what you need to make self-employed compared to a salary for equivalency and see the most common says 1.6x salary.  I saw a table that said for the $170K I currently make I'd need $287.5K out of this new endeavor to be even, and that is the type of thing that concerns me, as that is near the top end of their estimates.  I'm OK making that in what seems to me to be a more manageable and likely more pleasant work environment that I create myself.  It's hard to put a price on not getting reprimanded for nothing and what that would be worth as I would hopefully feel happier about going to work where I can avoid that type of garbage.

CareCPA

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Re: Business opportunity - to do or not?
« Reply #8 on: July 02, 2018, 09:56:50 AM »
I work with several Amazon e-commerce clients, so I'm pretty familiar with that business end. It sounds like you have substantial experience here as well.

You know, and has been pointed out, that your profit will be limited. Your risk is concentrated (Amazon is your only customer), payment terms will probably be slow, and they hold all the control.

All that being said, I'm not personally against the idea. I think Amazon does not want to handle this part because it would give them substantial nexus in literally every state and locality. Can you imagine the number of tax returns they would have to file? Literally thousands. I think this is a way for them to keep compliance costs down. If you live there, you already know, and can navigate, the rules. You know if you have a local tax obligation. You know if you have to register vehicles.

If you are counting on this for a short- to medium-term play, I would roll the dice, especially if you already have someone with logistics experience on board. I would not count on this being a long-term business. Initial margins will probably be good, but I would look for the profit-to-headache ratio to change after a couple years.

Build it up, make it profitable, and sell it off to the next guy.

tralfamadorian

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Re: Business opportunity - to do or not?
« Reply #9 on: July 02, 2018, 12:49:14 PM »
With a relative who has a long term relationship with UPS, it sounds like you would have a much better than average ability to determine what the true costs are of running a last mile logistics company.

I agree with @trollwithamustache that by putting a cap on size, Amazon wants to make sure they are in total control of how much they make per order on shipping and are able to dictate all terms. To go through all this, I presume that they will be paying out less to these new contractors than they currently do to UPS/FedEx/USPS.

caracarn

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Re: Business opportunity - to do or not?
« Reply #10 on: July 02, 2018, 02:01:33 PM »
With a relative who has a long term relationship with UPS, it sounds like you would have a much better than average ability to determine what the true costs are of running a last mile logistics company.

I agree with @trollwithamustache that by putting a cap on size, Amazon wants to make sure they are in total control of how much they make per order on shipping and are able to dictate all terms. To go through all this, I presume that they will be paying out less to these new contractors than they currently do to UPS/FedEx/USPS.
Perhaps.  I've been having conversations about this aspect with multiple people over the weekend.  It will be hard to know what their rates are to tell if this model costs less as I've never seen Amazon disclose their rates, not do I think they will here.

Where we ended up is that this is still worth doing for Amazon even at not cost improvement.  They remove unpredictable third parties with no vested interest in Amazon's well being and replace them with partners whose only source of revenue is packages from Amazon, which creates a definite interest to help Amazon be successful because if they fail, we'd fail as well.  They avoid all the cost of the people and benefits they would need to staff this up and make that the issue of a partner (they require certain benefits be provided, such as healthcare, I assume to avoid bad press about setting up a system that partners could use to hire slave labor).  Unlike UPS/FedEx/USPS who answer a RFQ from Amazon with a price, in this case Amazon is setting the prices ahead of time and only those suppliers who are willing to do the work for that will sign up.  Even if the rates are the same they have more control over the partners than they do over UPS/FedEx/USPS. 

Beyond that, one would think the law of supply and demand is something Amazon has not learned to over rule yet, and also never will.  If they make the revenue to low no one will sign up or the ones that do will fail quickly and they are back to square one, relying on unreliable third parties they can't impact.  From what they already have done my guess is Amazon has spent millions in time to build out this system with all the negotiation and integration work they have done to make everything they are providing function.  They had to open up their software systems to allow third parties to utilize them while keeping their internal data secure.  That likely required a rewrite of their systems, which is no small task.  Working with a vehicle manufacturer to fit out vehicles in a certain way, to  do the studies and work to create those designs in the first place are also not trivial tasks.  This does not look like something Amazon would do and let fail.  That means their rates need to be competitive and profitable to the partners.  Can they squeeze people later?  I suppose, but again the law of supply and demand does not vanish.  If people cannot make money at something then it will not be done.  I see no scenario that Amazon wants to go back to other carriers ever, unless the world of logistics invents something as yet unseen.  This means a fruitful long-term relationship.

I guess let me ask my question a bit differently.  Do you see any risks or realities that make this business scheme any worse than anything else? 

I know of few businesses where I could set my own price and have people pay it.  I know of few businesses where my customers would not demand over time that I do the same work for less.  I know of few businesses where the landscape could not change to the point where I could not make money and would have to move on to something else.

If I could make this work for ten years, I'd be happy.  That is my target. 

To be clear, the family member with the UPS experience would not be working with me.  They are in another state and if they did this they'd apply to be a partner in their own right.  I just can ask them questions as I go through the analysis not really much different than someone who has a person like this in their professional network, I just have this guy in my family tree.

The feedback from him so far is less concerns about the cost model and more about obtaining and retaining the drivers I'd need.  He said that will be what makes or breaks this business first.  Very few people want to be drivers, and those who do, are not of the reliable caliber.  Being a driver requires decent physical ability.  He indicated unless your driver is out and back in the truck in a minute or less you will not be making money in most cases.  That is what he targets at UPS.  They are not getting any young drivers.  In his group they have 10 slots.  3 guys have quit.  3 more are out on disability.  2 more are likely to retire before the end of the year.  They have a list of drivers who can fill slots, a waiting list.  This used to be full of names.  Today, that list is empty.  That is the problem he thinks we would face.  The unknown is if this problem in Chicago is the same one I'd have here in Ohio.  They are very different markets.  We also discussed that a lot of the costs such as insurance and fuel will be much lower here.  Insurance is about 60% less expensive here than there.  That's a big number and can impact the margin substantially.  Fuel is 10% less expensive.  After the personnel issues, his next area of concern was what the routes will look like.  Long distances between stops cause issues.  Amazon does something with route length in their payment structure.  Does this compensate for that?  Since we are building our routes ourselves, can we control this to some degree?  How much does Amazon allow us to do to select what area we cover or is the area assigned?  Worst case is if they make partners compete and oversaturate the market.  The general feedback is this would harm their brand and likely is not their play, but I'm keeping my eyes open for these gotchas that an be the pressure points on which hinges if this endeavor makes money or losses money.

The other big different here is that this is not an opportunity like others self-employed items where you are allowed to do this on the side and keep your day job.  Amazon requires you to commit to full time operation or you will not be approved.  As yet unsure what this means.  Our intent is that my wife and I will do this jointly, but can she, as an employee of mine be my full time representation until we get enough income that I can more comfortably walk away from my steady paycheck or does Amazon require me as the applicant to be the one there?  In short, is it really "my" company, or are they gating me with a lot of things that would not be present.  They already do not allow me to hire part-time people.  How they would enforce that remains to be seen.  Will they require an audit of my personnel records periodically, or do they want access to my payroll system so they can check whenever they want?  This is the mix I feel I need to look at as I proceed.  How much freedom do I really have, or is this really not an entrepreneur project, but just an independent contractor that is required to follow a very specific and strict set of business practices?

tralfamadorian

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Re: Business opportunity - to do or not?
« Reply #11 on: July 02, 2018, 03:55:03 PM »
I guess let me ask my question a bit differently.  Do you see any risks or realities that make this business scheme any worse than anything else? 

As you stated lower in your post, the one of the biggest concerns for me (besides of unknown of Amazon's rules) would be employee quality and turnover. I believe turnover in the business is close to 100%? And the workforce is aging?

Maybe post a test listing on craigslist and see how many and what quality of applicants you receive?

caracarn

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Re: Business opportunity - to do or not?
« Reply #12 on: July 03, 2018, 06:37:39 AM »
Excellent idea.  I'll have to keep that in mind if/when this moves closer to reality.

I did find it interesting that in casual conversations with the head of our distribution center here, he shared that he had applied for one of these partnerships as well.  Was reassuring to know that people who work more directly in this industry are seeing this as a viable opportunity worth exploring and gives me more confidence that my assessment so far may be better than I was assuming.

caracarn

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Re: Business opportunity - to do or not?
« Reply #13 on: July 05, 2018, 07:56:46 AM »
I don't know man, you currently make $170k (in cheap Ohio) and want to leave that to start a trucking company that only deals with Amazon? Ahhh seems rather risky.

Maybe you responded this before but,
How do the drivers get paid?
Who's responsible to buy/maintain the trucks/vans?
Workers' insurance?
Warehousing?


I'll be honest, I don't know anything about Amazon's distribution, you do, so it seems like you have all the information you need. But a $170k salary is not an easy thing to replace.
So, I figured as I'd get feedback I'd end up getting more into my rationale.  I kept it out of the original post because that would have made it really long.

I have gone past the point in my career where I am much more heavily invested in enjoying coming to work and not feeling berated or helpless than I am in making a certain amount of money.

I think I mentioned upthread that when I was looking for a job last, I had already crossed that point and was willing to take about a 40% cut in pay just to get back to a simpler job and cost that in to the end then deal with the never-able-to-meet demands of being a management type where you cannot hire the people you need to actually do the work and then get crapped on for not being able to figure out the impossible.  I only accepted this job because the environment seemed so anti-corporate.  And it was.  It was heaven for 18 months.  Then the owner decided to hire a CEO for the first time ever in 40+ years and the guy who came in has turned this place into.... every other place.  It is massively high stress, cost chopping, do more with less standards and I get grief nearly everyday.  Morale across the whole organization is miserable.  Sure I get paid a lot of money, but at some point that just does not matter if you feel like crap heading out the door every day wondering what joy will greet you today.  Point being, I do get $170K, but I am still planning on 10 more years of work, and there is no guarantee this job will last that long and I have much less control in the role than I did when hired.  My new direct manager is also hired in from outside the company and has never has an IT department report to him, so along with his unrealistic expectations (best one was our discussion last week about how my web development manager could dare to present a project plan that took 30-60 days when he had been asked to do the work in under 14), I also have to educate him on what it really takes to do every task in our group and how it is not like on "24" or "hackers" or "CSI" or why he can download an app in 10 seconds but we need a month to write a report.  Having to explain that the app he downloads still took months of work to build in the first place still does not work.  So that's just a peek into my world and why walking away from $170K job to at least have the only people yelling at me be me or customers that are paying me and also to recover some autonomy in decision making and not be second guessed every five minutes is preferable.  I do not have nearly enough information yet to determine if this makes sense.  I have to wait to hear back on my application, and only then will the process move forward.  I may be told no and then I get to keep doing what I am doing until I find another option or figure out how to make this better.  I am trying to improve things every day and it still is far from unbearable, but it has been a rapid slide from pretty amazing, to well below average.  Keep in mind, our VP of Distribution that I spoke with a couple days ago and who also indicated he applied likely makes more than I do.  I do not appear to be the only one in our company thinking that walking away from a high paying job to a lateral move in income but one I control more of is attractive.

So for the opportunity questions.  This is a stand alone business.  Amazon is "assisting entrepreneurs in establishing their own logistics company".  I assume there will be no legal agreement of any kind binding us together.  Amazon is my customer and I am delivering their packages for them.  As such, all expenses are my company's to bear, the employees, maintenance of equipment and insurance.  Amazon indicates they have negotiated deals you have access to for all of these things, but that is the extent of their aide on that front.  I do not have any warehousing I need to do.  I am getting packages from Amazon's warehouse.  There are very localized delivery companies.  I am not going to be moving product from one major metro area to another.  It is last mile delivery from Amazon to customer door only.  I, however, do not view all that aid as insignificant.  I also do not view this as necessarily (I am most certainly open to the prospect that I am wrong) to good to be true.  If you apply simple supply and demand to this process, here is what I know.  Amazon ships over 5 billion packages worldwide each year.  That translates to north of 13 million packages a day.  In talking with my UPS cousin a typical truck makes 100 stops a day and those are big UPS trucks, not these smaller vans, so guessing that would be more than enough stops.  Even if I build to a full fleet of 40 vans, that is 4,000 packages a day.  Not all 13 million of those packages are coming to my location of the world, but I'm thinking way more than 4,000 are.  They already have multiple partners in their literature in the same metro space (two in Denver are quoted, one with 50 and one with 75 vehicles).  I do not anticipate on-line shopping getting smaller any time soon.  I therefore feel quite comfortable that Amazon will fill every one of my trucks I choose to place on the road every day.  With the volume of partners they are targeting, we are talking tens of thousands of these vehicles around the country and hundreds of them in each metro area.  Any business, say the maintenance facility negotiated with, can therefore count on a pretty stable set of work coming their way and likely is happy to give a discount to secure that work, meaning that my costs will likely be pretty competitive in a lot of areas.  I still have the option to make my own choice in any area if I feel what Amazon is offering is not up to snuff.  This will likely create a massive interrelated web of supply and demand relationships that stabilize the customers into any given organization and they incentivizes them to offer competitive bids.  I then can take advantage of that scale and save some money. 

I do get that I'd need to get up very near that $300K in profit to make this make sense.  I also have confidence in my skill set that given a solid business model I could operate it in a way that I would be a top earner.  I'm not viewing this as a business that competes in the same way as UPS and FedEx do with each other.  I have a customer that is using be as a preferred vendor.  I do not have to earn their business, they are giving it to me.  I just need to meet their expectations of service levels, and that should be possible.  Granted getting solid drivers will be the key and hiring good people is tough, but it is not insurmountable.  I do not need to make $170K to pay my bills.  I'm a Mustachian, we can do much better than that.  Sure less income will slow down any savings we are able to do while we finish up the kid raising, but right now peace of mind in work is worth that trade off. 

This model is also, at face value, very different in the ability to scale.  You have your customer, Amazon, indicating they want you to grow as fast as possible, i.e. if I have a van they will have packages to fill it.  This is a unique trait that any other business model does not provide (at least the legal ones).  I may determine that is not really accurate as I get deeper.  My intent is to remain skeptical throughout the process and only agree to go if and when I am comfortable with the whole view.  On the risk front of only one customer, this is a valid concern.  As I have looked at it I find very little upside to Amazon to not uphold their side of the deal, i.e. using me as a partner as a preferred vendor, therefore guaranteeing my income stream as much as it could ever be guaranteed in any business.  Please add to anything I may have missed or shed your light on how my analysis is flawed.

Amazon will not likely shrink.  All bets against this over the years have failed miserably.  Amazon continues to grow and expand and eat more of the sales space.  Even if they stayed flat, the demand for someone to deliver the packages is already there.  I therefore see little risk of Amazon not being able to provide enough packages.

What is Amazon's alternative if they choose to walk away from partners?  They would need to revert back to the current model.  The current model is what drove them to decide to invest time and energy (and likely a lot of money) into building out this concept.  From a logic standpoint it would seem very unlikely that Amazon does not do everything possible to support the partners.

Amazon gains more control over a risky portion of their process.  I am very focused on Amazon doing well so I do well.  Amazon knows that and knows that is way more loyalty than they will ever see from UPS/USPS/FedEx.  It is like a Coca Cola bottler.  They are all independent in each market and all they do is bottle and deliver Coke.  They have one customer an they work hard to make Coke popular.  Amazon knows partners will do the same, so what incentive would they ever have to tamp that down?  None that I see.  Down the chain you create a similar waterfall of dependency.  Most, if not all, partners will likely start using all the Amazon negotiated deals for trucks, handheld devices, support service, maintenance and fuel.  Those partners now have the same skin in the game.  They want me to be successful so that I have trucks that keep needing service, people that need to be paid, etc. because by doing that I use their services and given them stable income.  They do not have to fight for each Amazon partner to earn their repair business, they are also a preferred vendor.  I likely cannot get my truck repaired for less, so I keep going to them.  The whole chain does go down the path of all your eggs in one basket, but I fail to see how the chicken laying the eggs would find it better to go back to the other baskets is wants to walk away from now.

Compared to any other business model, this has one of the lowest risk profiles I have ever seen.  Your hardest task, finding customers, is a non-issue.  You are being handed a full load on day one.  No ramp up time, no lean period to work up to speed.  No significant capital investment is required.  You are not buying trucks or anything expensive, which is how you can startup with five trucks for $10K or so.  Amazon is simply diverting already existing package volume to partners. 

My success or failure impacts Amazon's brand reputation in my area.  They have skin in the game to help me be successful.  My people are showing up at doors across the city in vehicles and uniforms that scream Amazon.  If my people fail, Amazon is considered along with that failure.  That does not currently happen as clearly with UPS etc.  It will be much harder for Amazon to wipe their hands clean in this case, and to assume they have not already considered that would be foolhardy.  Therefore, that leads me to believe that a lot of smart people at Amazon think this makes sense and will do everything possible to show why it does, which turns into something I can benefit from.  They provide a support line to get help quickly.  They are not doing this because they do not realize their head is in the chopping block along with ours.  These steps clearly seem to indicate they get who our fates are tied together.  One could pick a much worse company to tie their success to.  A previous private company I worked for ended up having Motorola be nearly 90% of revenue.  We were concerned as employees there and worked hard to diversify, but Motorola had such market share for many years that it was not possible.  We got very, very well compensated through that relationship despite the "risk" of only one customer.  It worked well for at least five years.  Then we found others, and the experience and reputation we had built translated into much easier sales to other customers.  I recall many a conversation beginning, "If you could handle Motorola's business and demands we are more than comfortable you can handle ours.  When can we start working with you?"  I would find it hard to believe a similar result would not be possible with Amazon and servicing their logistics.

Hope that helps with a lot more detail. 

Looking forward to more discussion.


oldladystache

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Re: Business opportunity - to do or not?
« Reply #14 on: July 05, 2018, 09:31:35 AM »
Will you end up with a business you can some day sell to someone else, or will Amazon make that difficult or impossible?

caracarn

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Re: Business opportunity - to do or not?
« Reply #15 on: July 05, 2018, 10:38:35 AM »
Will you end up with a business you can some day sell to someone else, or will Amazon make that difficult or impossible?
That is a question I do have on this.  I have had concerns with exactly "what" there will be to sell.  I think at best it will be revenue stream because if all the tangible assets are rented then there is no cash value there.  Not sure that means it is a bad thing, as how long of a shelf life does a delivery van or a handheld mobile unit actually have anyway?  It's not like a building or a piece of manufacturing or construction equipment that might have a useful life in decades. 

It was something we have discussed when we thought about not jumping in initially and perhaps buying out an owner later, but we arrived at the fact that is you have a company with $4 million in revenue a year that will not transition with a sale of $10,000, so we perceived that there would be some value there that made the cost (or in your questions case my sales price) higher than the startup cost because you are purchasing an established business rather than starting it up.

maz_phil

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Re: Business opportunity - to do or not?
« Reply #16 on: July 06, 2018, 09:47:44 AM »
Hey Caracarn,

The short of it: no, this is not a good opportunity & is little more than clever marketing to reel in some "suckers."

Long: I looked into this opportunity, and no matter how it appears, you ultimately do not own the business...Amazon does. You're paying $10,000 as what could largely be considered a "franchising fee" to be able to slap Amazon's logo's on your trucks. In order to get anywhere near the possible $300,000 trucks you must have around 40 trucks which is a SUBSTANTIAL financial investment on your end for a business that, again, you ultimately do not own.

Also, much like Walmart, Amazon will wait until you have optimized the trade routes/logistics in your area and then they will take the business from you. There will be no "Selling the business" because you truly only own the trucks. They will simply swoop in and take it from you.

You would be an Amazon employee, not a true business owner.

MaaS

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Re: Business opportunity - to do or not?
« Reply #17 on: July 06, 2018, 10:06:54 AM »
This is a tough one. I've spent much of my career in logistics and can see both sides.

On one hand: You can start a business and avoid the customer acquisition challenge. Most people are surprised by how much work and capital it takes to build demand for a new business.  Additionally, you don't have to build your own systems.

On the other: In the long-term, Amazon's goal is to replace you. They want these packages delivered by autonomous vehicles and drones. Not you. If you think of this as a business to grow over the course of decades, I'd caution against that.  With that said, fully-autonomous delivery at scale isn't just a few years.  There could be a decent runway here.

Conclusion: I have no idea.


caracarn

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Re: Business opportunity - to do or not?
« Reply #18 on: July 06, 2018, 10:13:21 AM »
Maz I saw your PM of the same material first and asked for details on how you got to this assessment with the materials provided in any fact based way.  Without seeing any actual contracts or actual material beyond what is on the web site in the 11 page doc I think the only way you get there is with a lot of assumptions.  I'm really interested in what material you reviewed that the group of people I have spoken with on my end were not able to find.  I looked hard for franchise situation and found no evidence of it.  I also see several items that indicate the exact opposite of being an Amazon employee when you look at the requirements of the legal setup of the business. 

Something you would have to making an assumption about because there are obviously no hard facts out there on it because it is future state is what Amazon "will" do in the future.  If they wanted to be in this business they could just build it themselves as they already did the logistics network they wanted to control.  You never own the trucks, you are leasing them (you indicate you do, which again is why I am asking what you reviewed because the model clearly is not possible with truck ownership.  If you can tell me where to buy 5 delivery trucks for $10,000, I'd love to know). 

Again, I'm not looking at this entirely in the full entrepreneur standpoint, but rather getting more autonomy in my work life as I continue on to FIRE.  If I had nothing to sell at the end but I made the possible $300K a year for a decade I'd be perfectly happy at the end.  I do not really need anything to sell, I just shared that I felt the value of a running operation is higher than a startup. 

I'm certainly open to all perspectives at this point as there is not enough information to make any solid assessment.  I've actually looked to see if any business analysis has been done a week later and I see none, so at this point you seem to have information no one else has, so if you'd share with us that would be appreciated.  Are you saying you applied and have been accepted already and have seen the more detailed information I need to make my decision?  If so, that certainly would make you more educated on this than anyone I have spoken to.  If not, can you provide more detail on how you are getting to your viewpoint from the sparse marketing detail provided by Amazon publicly so far? 

caracarn

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Re: Business opportunity - to do or not?
« Reply #19 on: July 06, 2018, 10:16:39 AM »
This is a tough one. I've spent much of my career in logistics and can see both sides.

On one hand: You can start a business and avoid the customer acquisition challenge. Most people are surprised by how much work and capital it takes to build demand for a new business.  Additionally, you don't have to build your own systems.

On the other: In the long-term, Amazon's goal is to replace you. They want these packages delivered by autonomous vehicles and drones. Not you. If you think of this as a business to grow over the course of decades, I'd caution against that.  With that said, fully-autonomous delivery at scale isn't just a few years.  There could be a decent runway here.

Conclusion: I have no idea.
Your analysis is where I am at.  I need a decade, 15 years at most.  Drones need a pilot.  Getting away from that to the point of precision delivery to porches without error is a long way away I think.  Vehicles are the same.  Look the the Domino experiment.  People are not going to want to go out to their car and get their box like they do the pizza right now.  I do not see that changing unless you start paying customers to get their package.  You already offer delivery  for "free" with Prime, so you can't tout cost savings to the customer.

So right now I have no idea.  I'm with you.  I need a lot more detail to decide,  but I do know it is intriguing enough that I want to learn more.

caracarn

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Re: Business opportunity - to do or not?
« Reply #20 on: July 09, 2018, 10:13:53 AM »
Hi caracarn,

Going back to your current job situation, what needs to change for you to be happier at it? Is it the new CEO that brought in a different structure which made everything a bigger pita? Can you "give an F less" and be happier than now?

In regards to your job, what type of hours do you average a week? What type of benefits? What type of pension/retirement are you offered?

Again, in Ohio (as in a lot of places in the world) a $170k yearly job is an amazing opportunity to live/retite(even early) extremely well. Can you make small changes at your job to keep you happy while trying to pinpoint a better business?

Like I mentioned before, I don't know anything about the Amazon opportunity but I do know that your type of income is 3+ times the Ohio median. That's something not to be given up lightly.

Sending you a PM
This might turn into a long reply, but I will try to keep it from being a rant.

In general it is a bit of the shift in just wanting to be treated respectfully and feel valued as a person.  I've tried for decades in a "traditional" role (read, a job working for someone) and spoken with a lot of people about this over the years and it generally ends up at the same place; you need to suck up a lot and just slog forward.  I believe this is similar if not exactly what you mean by "give an F less".  But I find myself questioning from time to time, "why?"  Why should I have to do that just to earn a living?  That's really at the heart of the soul sucking hole I find myself in right now.  I'm not walking around depressed or anything, and the description is certainly overly dramatic, as it is not all consumimg, but when I allow myself to dream, I can see a better environment for myself.

I also appreciate the blessing I have with my current income level and you are 100% right that it is nothing to take lightly, and I do not.  However, when things shifted as they have now, it shows me that my ability to keep this job is highly dependent on other people and in no means assured.  To directly answer your question, what would need to change, is that our CEO would need to stop overtly threatening people in between speaking at everyone as if he was your best friend.  He comes across as very disingenuous and smarmy and given his sales background most of us describe it as a used car salesman.  My dissatisfaction began after I was trotted into his office about three months after he started.  He first began with a litany of how valuable I was to the company and how much he respected my ability and then moved on to the topic at hand, his displeasure with what he heard in an exit interview.  He felt we had lost a good employee from my department and said he was told that I was managing by "threatening people with their jobs".  This was that employees interpretation, and I do admit to being direct after nearly a year of trying to coach a mediocre to poor team (of which this "good" employee was a part) to rise to the level the organization required to grow.  After many different methods had tried and failed to achieve results in this group (other people I managed had been able to adjust to the new culture of accountability and metrics) I did make it clear that this was the performance level that was expected, and when asked, was honest that it would be difficult for people to succeed here if they could not perform to that level.  It was an honest performance evaluation.  This person who left was very outgoing personality wise, but they had come to my office and asked to be demoted to their previous job of basic help desk support because they could not handle a business analyst job I had moved him into.  They had very poor communication with the team, with their stakeholders etc.  They were very nice about it, but they could not execute.  This was not a "good" employee, but our CEO felt, because of a few interactions with him where he saw his customer service demeanor, that we were losing a gem.  And so he explained to me how he wanted me to work with my boss to hold people accountable but not make them feel threatened.  He explained how it was crucial to achieve his goal of Best Places to Work that we be very nice  etc.  So I walked out of a meeting where I was told not to manage threatening people with their jobs by being threatened with my job.  The hypocrisy was not lost on me.  A few weeks later we had a meeting with our implementation partner for a steering committee meeting about our ERP implementation.  Our CEO smilingly relayed the story of how in his last company they implemented Oracle and the project went from $4 million to $8 million and he had to fire everybody.  He explained how he wanted to avoid that here.  He did not want to fire anyone and it was really unfortunate for those people that the project went the way it did, because what choice did he have?  He then told us how happy he was with the report and that he could see this project was running well, nothing like that one, and that no one should worry about losing their jobs because he was confident we'd be successful.  When I walked out of the meeting to have a debrief with my boss and the consultants to talk about next steps, the first thing my boss said was, "I think he just threatened to fire you at least four times in there."  I explained that I got that.  Since then nearly everyone I have spoken with has similar encounters to speak of.  The new "joke" around the office is the CEO threatens to fire everyone at least once a month.  It's his motivational style.  That's what has made me seriously consider this opportunity.  It's also why I'm not looking at it as really an entrepreneurial enterprise in the strict sense but just as a "job" that I could do that I think I can impact the work environment more positively in.  Part of my assessment of this, or any opportunity, is that my mental happiness at a job is worth some amount of money and therefore if I had to make less to get treated like a human being I'd be OK with that.  Even if I just made 2x the Ohio median, being happy and healthy at work would be terrific.  I had that here for about 15 months and then the new CEO arrived and ratcheted up the pressure. 

So that's the challenge, in that I feel that my longevity here is only partially in my control. 

Now, I've been around the block long enough to get this is how a lot of companies are.  I just am sick of all of it, and I admit I may have a lot less tolerance for it than I did before I realized there was a real alternative to this crap when I discovered MMM and saw that what I thought was possible really was, I just needed that little bit of someone outside myself reinforcing that belief with concrete examples and math .  But, I do struggle with the fact that any opportunity to go out on my own is not guaranteed to succeed, likely means being off the path forever that I am on now with my career, because it will be hard with my age and my profession to get off the treadmill and then jump back on, other than as a consultant, which I've done before and hated.  I'm trying hard to avoid the time pressure feeling created by this Amazon opportunity because I likely only have this chance to do it or it will be gone in any realistic manner.  If I had to invest $100K in a business that would impact FIRE a lot.  I see this chance of doing something at 10-30% of that level as the only real shot at something other than just staying on the treadmill.  I feel that running my own company I can do a lot more to impact the culture and keep it positive and respectful of all my team members, versus having to rely on someone else to do that.

The current project (that if it fails, I will with almost 100% certainty lose my job) had a lot of things outside my control.  Not sure how familiar any people here are with large system implementations, but there are thousands of moving parts.  It is my job, along with all the other things I have to do to run a full department in a global organization, to help influence that.  Success will be determined by how well people learn and use the new system, how smoothly daily work flows after the cut over, what the impact to the business profitability is in the weeks and months following.  From a financial perspective this project is pretty easy.  Come in on budget and do not have a negative impact on sales because we can't ship or something catastrophic like that.  How all that goes is dependent a lot more by how every other department does things versus how my team does them.  If I felt comfortable that was understood (CEO says he gets it) and that things would be looked at objectively and my team/me not just be the scapegoat to say someone got canned because things did not go well, that would be enough to get me to remove the consideration of having an active Plan B.  I've done over a dozen of these before in my career.  Some went better than others.  I'm good enough at my job that my team executed on every one of them, but it was not always in our hands if blame got heaped on our team for something that was really the responsibility of another (not knowing how to enter sales orders for several weeks is not something I can just will into happening.  People who enter them need to invest the time to build confidence, and they have to be given enough time to do that by their management, as an example).  My chosen career is a pressure filled environment and I thrive in the chaos and know how to make things turn our right far often than they turn out wrong and that is why I'm able to make $170K a year.  I'm good at what I do.  But that also means, I'm road weary enough to know when the deck is starting to get stacked against me.  This is the first place I've ever been that other major projects were not differed until after go-live.  We are less than three months from our original target and there were just two major projects added into the organization.  We are past the worst case scenario for a freeze from upper management, and long past the average of about six months.  I have a wonderful set of people heading up the other departments who want to be successful but have no idea how to be when they keep getting more placed on their plate.  I have had much worse sets of stakeholders and had a much better sense of confidence.  It seems as if the organization is being set up to fail on this project because it is not being given the focus.  They tell people it is the #1 priority, but then keep adding priorities and then grumble about how they cannot take a back seat to the supposed #1 priority.  It's a perfect storm of problems and I have been screaming from the rafters for a couple months to get it understood and actions taken.  I've gotten some relief in the schedule but that only helps if they stop adding new projects.  We need to be in a holding pattern until go-live at this point to have a real shot at this thing working.

So I could trudge along and work very, very hard to make this project succeed as I do on every one of these.  If it does, there are still other systemic issues in the organization that could cause layoffs to occur (all around these unrealistic project expectations) because of lack of maintaining a profit margin.  We have the system ready to go for the original date.  The entire delay is to try to give people time to gain confidence in how things will work in the new system and that means they need more than the couple days of training they will get.  They need time to go back to their workspace and practice until they are comfortable, and it is really hard to do that when new major initiatives keep coming.  Our development team has had over 2 1/2 years worth of development work added to our queue in the last two months.  It's all based on the old way of doing things, not taking into account what may change.  I've pointed that out, yet senior execs insist they "need" this to be successful at the level our CEO wants.  Our target is to double our sales in four years.  That's pretty aggressive, and is realistic if we support our people.  It is a stretch if you keep pressuring them and scaring them and telling them how they don't know how to do their jobs. 

Hopefully that helps to paint the picture a bit.

Right now I am doing the best I can every day to keep moving towards our goals.  Until I get a "yes" from Amazon on the application I have no other alternative (other than to start looking for another job for some one else, but I know that will just be trading one set of problems for another unless I'm lucky.  I know most of the employers in the area well enough now to have started to hear the things they do not tell you on the outside).  Even when it seems like I found the place, as I thought I did here, it only takes one change at the top to totally change a culture.  This place is very different than it was just 12 months ago.  It's been a sad transformation.    I thank everyone for the ongoing help and commentary.  It is not something I am taking lightly and I appreciate the time everyone takes to help me muddle through it.

bwall

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Re: Business opportunity - to do or not?
« Reply #21 on: July 09, 2018, 10:39:19 AM »
Again, in Ohio (as in a lot of places in the world) a $170k yearly job is an amazing opportunity to live/retite(even early) extremely well. Can you make small changes at your job to keep you happy while trying to pinpoint a better business?

Like I mentioned before, I don't know anything about the Amazon opportunity but I do know that your type of income is 3+ times the Ohio median. That's something not to be given up lightly.

At that kind of money in Ohio, you can easily be FIRE in a short time. Sell some stuff you don't need and you'll be there a lot sooner than you ever dreamed. That is a whole lot easier than going to a job you don't like or starting a new business.

caracarn

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Re: Business opportunity - to do or not?
« Reply #22 on: July 09, 2018, 10:51:47 AM »
Again, in Ohio (as in a lot of places in the world) a $170k yearly job is an amazing opportunity to live/retite(even early) extremely well. Can you make small changes at your job to keep you happy while trying to pinpoint a better business?

Like I mentioned before, I don't know anything about the Amazon opportunity but I do know that your type of income is 3+ times the Ohio median. That's something not to be given up lightly.

At that kind of money in Ohio, you can easily be FIRE in a short time. Sell some stuff you don't need and you'll be there a lot sooner than you ever dreamed. That is a whole lot easier than going to a job you don't like or starting a new business.
I'd agree.  Challenge is the six kids.  Until they have flown the nest it makes things that much more challenging.  My current burn rate shows we have 10 years to go, so that's what I'm targeting.

bwall

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Re: Business opportunity - to do or not?
« Reply #23 on: July 10, 2018, 06:41:37 AM »
I'd agree.  Challenge is the six kids.  Until they have flown the nest it makes things that much more challenging.  My current burn rate shows we have 10 years to go, so that's what I'm targeting.

Doh! Yes, I think I have to walk back my statement a bit, then. Six kids do bring financial challenges. Keep doing your best, and simplify your life as much as possible. You've got an awesome offense. Improve your defense wherever possible.