Maybe We Should Embrace Inflation Inflation doesn't have to doom your new business. Done right, you might even help the bottom line.
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Growing old isn't fun, but it is educational. I've been starting new businesses for nearly three decades and investing in others for almost as long. I've done that through recessions, wars, and now a pandemic. I never let these awful events derail those efforts. Instead, I adapted – and sometimes even profited.
Related: How to Adapt in a Rapidly Changing Economy
Trying to time the launch of a business is no different than trying to time the market: it's much better to do both using consistently sound principles. Here are some proven ways to sidestep the traps of inflation, and maybe even use it to your advantage.
Real estate and inflation
I've previously described my strategy for investing in commercial real estate: I buy offices that lack flash. These aren't glass towers visible from the interstate. They're solid but nondescript buildings that I rent cheap because I bought them cheaper.
During a recession, businesses flee those pricey glass towers and downsize into my buildings. During inflationary times like today, businesses flock to my reasonable rents. of course, I can now sell any of these properties for a very hefty profit.
If you're a real estate entrepreneur, always remember: It's about profit, not ego. Buy cheap, earn lots.
Productivity and inflation
Inflation is a sign as well as a problem. It means demand is outstripping supply – so if consumers and clients are demanding your products and services, you can profit. However, inflation means your own expenses are sure to rise to meet that demand. How do you prevent one from canceling out the other?
You cut costs.
Related: 4 Ways to Boost Your Business by Cutting Costs
I realize this can be a controversial decision, especially if that means labor costs. You're just starting out, and if you lay off employees, what do you have left?
Earlier this year, the Harvard Business Review studied 5,700 global companies and concluded, "The evidence is clear: Even as many companies deal with inflation by devoting more energy to adjusting prices or finding new sources of growth, cutting costs remains an important part of managing in this economic environment."
One big criticism of cutting labor costs as a new business is that you're sacrificing long-term strategy for short-term profit. Yet the opposite is also true: Sometimes entrepreneurs are too loyal to their original business plan and staff, and they sacrifice immediate profits because they stubbornly refuse to adapt their strategy.
I've started several businesses that I originally thought were going to profit in one direction, but I had to recalibrate and profit in another. Even in noninflationary times, that has meant laying off employees with one skill set and finding those with another.
Inflation will help you focus. Either that, or it will eat your lunch.
Technology and inflation
I adapted my own business plans during the pandemic. One trend I noticed early on: technology has always replaced employees in slow and steady waves, but the current crisis has been a tech tsunami.
I've invested in AI and even robotic devices both as an entrepreneur and to streamline my existing companies. This form of shrinking labor payrolls has always proven profitable, dating back to typewriters replacing scribes. The pandemic has given rise to entrepreneurs developing bleeding-edge software and hardware to streamline even more back-of-the-house operations.
Related: How to Use Automation (and Avoid the Pitfalls) as an Entrepreneur
During the pandemic, we lost a dozen or more employees who handled mundane tasks. Of course, I kept the best employees and retrained them in other areas – because they're my most valuable asset. Some employees wanted to work from home forever, so it was easy to let them find employers willing to do that.
This technology has upfront costs and a steep learning curve, but as labor pressures continue, I've been able to ease that pressure – and let's face it, technology is exciting to implement and almost always pays off immediately.
Other anti-inflation tactics
Perhaps you've noticed I haven't talked about negotiating any variable-rate loans and locking them into longer-term fixed rates. I haven't discussed selling assets for top dollars (if, as a startup, you even have these). I certainly am not recommending hedging against inflation with cryptocurrency, which I've also warned about.
These are tactics that many experts either tout or decry, and they might work for you – or they might not. However, what I've mentioned above are the basics that every entrepreneur should look at first. In other words, before you jump into bitcoin, dip a toe into technology.
Most of all, don't panic. Don't feel compelled to act because everyone else is. That's how we got into this situation in the first place. successful entrepreneurs calmly profit when others spend out of fear or impatience. Take a deep breath. Study your surroundings. By the time inflation eases – and it always does – you might be looking back at these times with a very wide smile.
