Inflation is the enemy of 2022.
It’s known as a silent tax.
It’s been around for your entire lifetime.
Normally inflation is roughly 2-3% per year.
Seeing it at 7-10%, the central banks try to curb a hot economy by raising interest rates.
Central banks only have two tools in their toolbox. Increase interest rates or increase the money supply.
Money supply increases when the central bank is worried consumer spending will decrease and thus slow down the economy into a recession (i.e. Covid subsidies, the great bailouts of 2008, etc). The goal is to increase Gross Domestic Product always.
When prices start to increase more than expected, the central bank raises interest rates to encourage consumer saving instead of spending.
Here’s where it gets crazy.
The central bank evaluates inflation by using a basket of goods, better known as the Consumer Price Index (CPI). When beef prices disproportionately rise compared to other meat products, they remove beef from the basket and replace it with chicken.
They also don’t allow for energy prices to be counted in the basket, arguing that energy is already considered as an aggregate cost of other products in the basket.
This CPI fixing started in the 80s as inflation was out of control during the Reagan era.
If the official inflation number is 7%, some feel true inflation is about 13%.
Here’s why inflation is so important to advertising.
For years, many businesses were happy with a 2-3% increase in comparative sales. It kept them from losing what they had originally earned.
Back in 2006, I remember being a new business owner. There’s so much I would tell that guy if you’d lend me a time machine.
I admire the courage in 2006-me.
He risked everything, including his house, his bank account, and maybe even his marriage, in pursuit of a dream.
He dreamt of owning a breakfast restaurant.
$531,000 of debt later, he built it.
So dumb, and a tad lucky.
As time went on, he became conservative with risk.
He didn’t chase the same exuberance that got him his initial success.
He wanted to protect what he built.
Acting in fear, he stopped being remarkable.
Sales growth matched determination.
As complacency set in, determination waned, and sales growth trickled alongside inflation.
In 2007, he wasn’t sure the business would be profitable. Armed with hope and nothing to lose, he did his best work.
His sales grew 43% in 2008 during the Great Recession.
The following year, he doubled down and built another restaurant.
While some were hiding from the economic downturn, he went bigger.
I’d like to say he had no fear, but that’s not true.
He was terrified. He acted despite his fears.
In 2011, with two successful businesses, he was given the kiss of death.
He felt safe.
No longer terrified, he became careless in his actions.
In that moment, he should have been most afraid.
He was complacent and arrogant.
Nothing could hurt him, he thought. He had built a moat around his castle.
His problem wasn’t the business. It was him.
He took his eye off the prize, and it almost cost him the house, the bank account, and the marriage.
I believe remarkability is proportionate to the fear of losing it all.
I don’t believe you should play Texas Hold ‘Em with your business.
But when the time is right, and there’s a point of no return, you gotta be ready to put the cards down, push all your chips forward and say, “All-in”.
I believe a 2-3% sales increase is a shrinking business.
And a shrinking business should be in “All-in” mode to change the inevitable.
Whether inflation is at 3% or 15%, your sales growth has to beat that number to keep up, or you’re going to lose the game.
To do so requires courage on the same level as when you started your business. You’re smarter now, but don’t let all that learned stuff get in your way to being bigger, better, and more remarkable.
Eventually, protecting what you’ve built will be taken away from you by a young competitor who is as dumb as I was in 2006.
The real silent tax isn’t inflation.
It’s your complacency toward being remarkable.