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Bees engaged in high-risk activities

Here’s an obvious principle of personal finance: If you can spend $100 now to prevent spending $200 next year, definitely do that.

But in startup finance, it can totally make sense to decide to pay the $200 next year. Because your business is growing exponentially and $200 next year may easily be less expensive to you than $100 now. Both because you expect to be richer and because if those $100 expenses add up to enough distraction that your business stops existing then the $100 expenses were actually pure waste.

This is why you hear non-sarcastic financial advice to brand-new startups like “just put all your receipts in a shoebox and worry about it later”. When there’s a ton of uncertainty about getting off the ground at all then that actually makes sense. Put no effort into things that only matter if you get off the ground. Do things that don’t scale. Premature optimization is the root of all evil. Shirk & Turk.

Beeminder by now is a lifestyle business more than a startup so it’s closer to the personal finance principle than the startup version. But it’s still on the spectrum and things that would be no-brainers for personal finance are yes-brainers for us.

This is worth keeping in mind when being all prudent about your business accounting and taxes and things. It might be optimal to be less prudent than you’re naturally inclined to be. [1] Keep much of your focus on growth even at the expense of letting accounting problems compound in their risk of future ass-biting.

Summing that up: humans, being mortal, should discount the future at maybe 5% per year (1%? 10%? let’s say single digits or at most low double digits). A grow-or-die startup should have a huge discount rate, way over 100%, like where anything a couple years out is totally irrelevant. Other businesses should be in between.

What does Beeminder’s growth imply about its discount rate?

Well, we need to be growing faster than we are. Arguably we should quit if we don’t grow, since we’re not quite making market salaries. Which means spending money now to save money next year might be genuinely wasteful. Because next year we should either be richer or dead. Wide-eyed emoji!

(Don’t worry, we have zero inclination to walk away from Beeminder. We previously made a grow-or-die commitment device and it worked but was scary and stressful so we’re thinking about how to force ourselves to spur growth without doing that. We’re quite sanguine about this. We’re Beeminder users after all.)

But for the outside view on how long Beeminder will be around, the answer is, as of late 2023, another 12 years, per the Lindy effect. Or another 16 years, depending how you count. Again, the inside view yields an estimate of infinity years!

We can even use the Lindy effect to turn all this into a concrete heuristic. Pick a discount rate such that things at your Lindy horizon — namely, again as long into the future as you’ve existed in the past — matter half as much as things today. The formula for that is log(2)/x where x is your Lindy horizon. If you’re 1 year old, use a discount rate of 69% per year. If you’re 8 years old, use 9% per year. Then just take market rates as a floor on that, implying that once you’re our age you can stop doing any extra future discounting based on your limited expected lifespan.


[1] This reminds us of Nick Winter’s sage startup mantra: “nothing bad ever happens!” Which is classic reverse-all-advice advice. Some people are way too “put out fires as they happen” and some people are way too “let’s rebuild this with fire-retardant material and then rebuild it again in case that material causes cancer”.