Today I watched two TV-shows with the current economic situation as main topics. The brief: the debt per American is about 150.000 dollar. Banks are currently very reluctant to supply credit like loans and mortgages. In america the interest over loans (about 1%) was lower than the inflation (about 2%). House prices will very likely drop to 30% to 50% as they were in 2008.
In times of wealth the sky is the limit. When projects overceed their current budget, new budget is released trusting that the loss will be payed back in short notice. When sales drop, the story changes. Instead of “tomorrow” we will be talking about “next week”, “next month” or even “next year”.
Already prices are dropping in several markets because workers and machines are standing still and doing nothing, product do not get sold and services not taken.
The knife cuts both ways. Dropping prices will draw more work since you compete with others. It will also introduce less revenue and less margin. When one starts, some will follow and when the pressure is high enough the drop starts. It is also where the vultures pop up, promising you to help you out in any way they can imagine when you follow their sceme (or scam).
I have been wondering where to steer my single person in this situation. I have a personal responsibility of roughly 110.000 euro a year regarding a lease contract that will end februari 2011. Covering most costs with subletting (which I am allowed to contractually) I still am presented with annual surprises ranging between 10.000 to 30.000 euro due to things breaking down, not working in order or due of energy usage and energy prices rising.
On a personal level I am already cutting my budget regarding advertisement and marketing (8.000 euro over 2008) and other items with relatively low relevance for my business. They simply do not connect to my line of business. I operate in a higher end of a market of custom made solutions. Every new assignment is different and offer new challenges and solutions that do not come in standard packages. People who can deliver the services I offer are not so easy to find. And people like me are usually found by end clients via word of mouth and via agents.
Here are my basic assumptions:
- Duration: I assume this new economic reality will at least last for 3 years before it gets better.
- Budgets and flow of money: companies and clients will be more conservative in spendings than the past years. The rich flow of money will slow down.
- Certainty: where my score in the past years was close to 90% on having a project to continue it will be reduced to below 50%
- Delivery: delivery to budget and promise will be leading. All else will be less relevant.
This could scare the shit out of me if I had not been there before.
I started my Freelance existence in 2000 just before the so called “internet bubble” collapsed. Everywhere in my line of business (Web Development) companies wend belly up. Budgets wend down. Projects were halted or frozen. I simply adapted and survived.
The one killing factor I know is losing the following two:
- My optimism
- My ability to adapt