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Ask HN: What should founders do to protect against inflation?

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Re: Ask HN: What should founders do to protect against inflation?

#41

Post by gnicholas »

Don't let customers lock you into multi-year pricing deals that aren't inflation-adjusted. It might seem strange to ask that future payments be inflation-adjusted, but that's just because we (anyone under 40 or 50 years old) does not remember high inflation from their adult life. But this is exactly what people do when there is inflation risk, currency exchange risk, etc.

A payment you receive next year could worth be 5 to 10 percent less, and a payment two years from now will be worth even less. It's like the power of compound interest, but as a sword, not a shield.

Conversely, try to lock in pricing with suppliers if you can!

Re: Ask HN: What should founders do to protect against inflation?

#42

Post by sokoloff »

sneeeeeed wrote: post #40
sokoloff wrote: post #37

Earlier quoted context omitted.

Are you assuming that the “October measure” of 6.2% is a per-month figure (meaning 12 of them would be +106% compounded [1.062^12-1])? That’s not how it works. The 6.2% is an annualized figure. (If the one year outlook were for inflation to be >100% in the US, people would be flipping out; BTC would be $200K+; markets would sell off 40+%; Treasuries would be selling at a yield well over 75%)

It’s month over month actually.

> It’s month over month actually.

No, it’s not.

From BLS: https://www.bls.gov/news.release/pdf/cpi.pdf

First paragraph:

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.9 percent in October on a seasonally adjusted basis after rising 0.4 percent in September, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 6.2 percent before seasonal adjustment.

Re: Ask HN: What should founders do to protect against inflation?

#43

Post by rkk3 »

PragmaticPulp wrote: post #8

The best thing you can do is ignore all of the inflation talk and focus on building your business. If your startup plans are put at risk by a couple extra percent of inflation, you have bigger problems. If you're selling a product or service, don't forget that the price of your product or service will also rise with inflation. Unless you have a strange business that requires multi-year inventory storage and low margi…

> The best thing you can do is ignore all of the inflation talk and focus on building your business.

Yeah the only inflation founder's need to worry about it is the valuations. Some will raise an A at 100x revenue but if B-Public multiples collapse in the future ... they are in a tough spot.

Re: Ask HN: What should founders do to protect against inflation?

#44

Post by lotsofpulp »

dragontamer wrote: post #39
lotsofpulp wrote: post #35

Earlier quoted context omitted.

I think VOO is the real TIPS, at least if you live in a highly desirable part of the US.

Not really. Everyone gets stuck thinking about 2008 (where VOO acted a lot like inflation), but 1999 is an example where the stock-market crashes, but inflation remained steady. In 1999, VOO would have crashed, but inflation would have remained steady, so TIPS would have done well. ------- If you want to "bet on CPI inflation", its hard to beat TIPS. Its literally indexed against CPI, and is the most direct investmen…

My comment was tongue in cheek that official CPI figures are not very relevant for someone saving for future expenses in higher cost of living areas, such as land, daycare, education, and healthcare.

A TIPS investment does little to mitigate your prospective house going up a few hundred thousand dollars.

Re: Ask HN: What should founders do to protect against inflation?

#47

Post by nuclearnice1 »

worik wrote: post #32
selectodude wrote: post #17

Earlier quoted context omitted.

This is dead-on, but just to add to this, none of your investors are investing in your company for a 7 percent yearly return. The SPX will almost guarantee those. They want grossly outsized returns that are large enough for inflation to be a mere speedbump. Inflation shouldn't even enter the conversation.

> The SPX will almost guarantee those Interest new use of the word "almost"

Hardly new.

> But your father doesn't want to invest, say, ten thousand dollars in it, though I can almost guarantee that he'll get five times that sum back.

Tom Swift and His Giant Cannon 1913

https://www.gutenberg.org/files/1361/1361-h/1361-h.htm

Re: Ask HN: What should founders do to protect against inflation?

#48

Post by altdataseller »

dragontamer wrote: post #30

> personal savings Buy I-bonds and TIPS. The more inflation there is, the more money these instruments make. They are literally the "bet on inflation" play. The problem, in the past 10 years, is that inflation has been historically low. So TIPS and I-bonds were a bad play. Turns out that this year, they were a good play. > startup cash Buy futures in the commodities that affect your business. If you need a bunch of o…

Is there a way of buy futures on servers?

Re: Ask HN: What should founders do to protect against inflation?

#49

Post by Terry_Roll »

Put your prices up to make sure you are making enough money.

Inflation rates only measure the cheapest of something, they never measure the change in quality so dont be scared to put your prices up. The worst that can happen is you cant sell a product because customers dont need said product/service and/or dont feel there is value for money, but economists would say thats the markets speaking. It depends on whether you want to work for pittance or not. Good gamblers know when to leave the table.

Re: Ask HN: What should founders do to protect against inflation?

#50

Post by actually_a_dog »

tqi wrote: post #36

Many here have pointed out that the difference between 6.2% and normal inflation is not meaningful for businesses. And that makes sense. I'm curious what if anything companies/founders could do in the event of actual hyperinflation?

In practice, what they do is feed the hyperinflation, by raising prices too frequently, because there's hyperinflation, which causes... more hyperinflation. The whole reason anybody needs a wheelbarrow full of cash to buy a loaf of bread is because the price is spiraling out of control. And, it spirals out of control because all the sellers of goods get caught up in the fever of rising prices.

The only thing that ends hyperinflation is a return to rationality, which is generally brought about by some sort of market crash. In 1994, Brazil used a different tactic, though: they scrapped their old, inflating currency, and created a new one, which they simply told the people was stable and not hyperinflating[0]. What it really was was a profound demonstration of the fact that microeconomics is really a strange branch of applied psychology.

---

[0]: https://en.wikipedia.org/wiki/Plano_Real

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