What should founders do to protect against inflation?

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 margins, inflation isn't really a big deal. Raise prices when the time comes.

> As of Oct 2021, the inflation rate is 6.2%

The CPI inflation rate is based on consumer spending and reflects a basket of things like housing, gas, transportation, milk, eggs, groceries, and so on. It's not really relevant for your startup.

You need to look at your biggest expenditures. For a pre-traction software startup, this is basically employee compensation. There's not much you can do about this number changing, other than to be such a great place to work that employees don't necessarily mind falling behind the curve as compensation rises everywhere. Or just do the right thing and pay people market rate and get good work in return.

> what should founders do to protect their personal savings and startup cash from the inflation while also maintaining liquidity?

Personal savings and startup cash are two entirely different topics.

Personal savings: Standard mix of stocks and maybe bonds/CD ladders. People seem to forget that stocks tend to rise with inflation, but it's how investors have been floating above inflation for centuries. Do not buy into the hype about either gold or cryptocurrencies being the only way to hedge against inflation. It's not true.

Startup funds: Cash is fine. You shouldn't be planning on hoarding this for many years anyway, so don't put it at risk in order to chase higher returns.

> 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 orange-juice, then buy orange-juice futures.

If the price of orange-juice rises in the future, you sell your orange-juice futures (which now have gone up with the price of orange-juice), and use all your extra money to buy the orange-juice you need to keep your business running.

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Both problems have been solved decades, even centuries ago. That's why we have a futures market / commodities market.

The opposite also is a problem: in a deflationary market (ex: Price of Lumber falls), you want to sell futures before the price falls.

A lumber mill will sell futures while the price is high, knowing that they can make all the lumber people want, and hoping that speculators will give them money. Locking in good prices for the items you manufacture is the entire point of the futures market.

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Futures market is also gamed by warehouses / storage. For example, if oil prices are in contango (oil today is more expensive than oil tomorrow in the futures market), the oil-suppliers will sell off their oil-reserves today (lowering the price of oil today, making room for cheaper oil tomorrow).

If oil prices are in backwardation (ie: oil today is cheaper than oil tomorrow), the oil-suppliers will buy up oil-reserves (increasing the price of oil today, filling up their warehouses in preparation for the more expensive oil prices tomorrow).

If an inflation rate of 6.2% is meaningfully different to your business than 3.2% inflation rate, you're doomed.

You shouldn't be spending even a single cycle thinking about the inflation rate with regard to your startup's liquidity.

Make sure you have not boxed yourself in by your pricing. Don't set a model that doesn't allow you to increase charges in line with inflation

I live in a country with fairly high inflation. It's fine. Nothing bad will happen. Inflation rate is purposely engineered to maximize employment. You're supposed to invest those savings in high risk things.

A healthy startup grows 20x its size every year. Founders are the people who are well ahead of inflation. What founders should really do is raise money now and just make sure employees have decent raises.

What comes to mind is speed up your program of work, ie spend your money as quickly as you responsibly can (easy to say I know, but the point is that speed and scaling should be a bigger part of your agenda if inflation is a concern). Anecdotally I feel like I have seen companies doing fundraising rounds very close together recently, inflation may be a reason. Investors will have the same concern and look for places that can deploy their cash fast.

Interestingly, I've talked to a few startup founders recently who were feeling good about having lots of money in the bank and not needing to fundraise for a while. This is probably still a common mentality, and may be more prudent. But if you can responsibly spend asap, you will get more bang for your buck

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!

Regarding the start up, it highly depends what you are doing. Lets say it is work intensive. Then hire now more people, since wages might go up. Lets say you it is rather commodity intensive. Then guess it is better to buy the stuff that you might need later. Especially you even could hedge with option contracts. So basically I don't see any risk. If you are selling stuff, try to keep the contracts short or adjustable.

Regarding the personal savings. I'm in the same boat. No idea how to hedge, since it seems that everything is quite expensive. So even with high inflation doesn't always imply that the stock markets will go up. Same is true for real estate. It just implies that your real dollar value will go down. I don't see a real hedge, just diversification.

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.

Grow faster than inflation. Spend cash on items that don't depreciate at the rate of inflation. Exit before you run out of cash. Make sure pricing is set appropriately and has opportunity to increase in the future. Consider "introductory" pricing instead of "lifetime" pricing. And on the flip side, try to lock in pricing now for things you buy that might change in the future. So, buy lifetime licenses where it makes sense, but don't sell them.

The interest rates on credit are very favorable when considering inflation. Entities with significant medium to long term debt can be attractive right now.

On a personal note, if you have a mortgage at 3% and inflation is 6%, then you are generating value and free to use the money you do have for stuff like investment properties or securities.

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?

Interest/Inflation rates have been higher in the past. Aren't startups generally interested in a 1 year timeframe? It would be easy to burn a few percent in transaction fees if you're not careful.

The inflation rate varies a lot by sector and industry. Hopefully you have a startup that has a compelling product where you can raise prices when and if you have to.

I highly recommend "The Hyperinflation Survival Guide: Strategies for American Businesses Hardcover" by Gerald Swanson

you should just hire an Argentinian who knows how to use its force in its favour. Inflation Aikido

The perfect time to take out a loan.

6.2% is merely 3% above average, not much in the scheme of things

Operate on a bitcoin standard

Put all the cash into Bitcoin

Inflation is a vital part of our economy.

Its how 'growth' remains 'sustainable'.

(both of those words doin' ALLL the work in Consumer Capitalism)

Hyperinflation is NOT happening right now.

Stop watching Fox.

PS: There is absolutely a ridiculous housing bubble right now. AGAIN. Worry about that.

At our current rate it’s only slightly over 100% inflation for the next year. Really it’s no big deal.

Deleting this as it seems to be completely misunderstood.