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Set Reasonable Expectations During the Downturn
Level 1 - NGMI
Welcome Avatar! It’s reality time. Not reality TV show. Reality life expectations during a downturn. If you’re reading this and believe that layoffs are not coming and believe you are “100% safe” it’s time to put down the glue and moonshine. It’s time to take an optimistic approach with a dose of reality. Once again. Hope for the best and prepare for the worst.
Part 1 - Set a Baseline Bar for Income
This means you should establish an expected income outlook for the next ~18 months. There is no perfect way to do it. That said go through all of your income streams (career, e-com biz, consulting biz etc.). Unless you are in one of the following: 1) restructuring, 2) emergency health care or 3) basic necessities like food/water… you should assume 2022 and 2023 will be *down* versus 2021. Yes this means all influencers will be down big as well (marketing is a budget that is cut almost instantly).
To make sure we’re not setting the bar high for you and low for us… we expect to earn less as well! Significantly less. While there is no need to disclose income, there is no shot that we’re expecting to be up based on what is happening.
How to Set a Baseline: Don’t use GDP. GDP is supposed to be flat to down low singles. This isn’t the driving factor since cheap money is the driving factor. If you want a rough number, use the prior recessions as examples.
Earnings go down double digits at minimum before recovering.
So. Go ahead and take a realistic approach based on your industry. Were you selling low-end NFTs that don’t have value? Likely down 50-90%. Were you selling beach front property in LA and Miami? Likely down much less maybe 10-15%. Were you selling Gucci/LV clothing? Pretty safe vs. something like Macy’s.
If you want a metric: 1) luxury high-end high quality business assume down -10-12%; 2) average business no competitive edge caters to broad range -13-19% and 3) if you’re in a terrible industry or cater to white collar middle class it can be down as much as -20%.
Industries to Be Hit Hard: If you’re in one of these you’re already seeing pain or will experience it soon: 1) Money/Fund raising - mortgage brokers, Equity Capital Markets, Seed/Series A/Series B etc.; 2) Home building and Automotive - effectively one and the same. Cheap credit drives these markets higher and that cheap debt is no longer available; 3) anything linked to Europe that is not a luxury product. BMW would be a bad place to be and anyone running restaurants in Europe will be in even worse shape due to electrical costs and 4) BNPL type companies since they are taking on far too much risk. People should not be funding “eat now pay later”. [vacation type items like cruises would fall in here as well].
Industries to Be Insulated: If you’re in one of these industries, cut the downside expectation in half at minimum (some might be up!). While hospitals can make small budget changes, in the end, people will pay to fix a broken leg: 1) medical/healthcare activities that are essential. Also. The health care items tailored to the wealthy will be insulated, like Botox, 2) restructuring - safe because debt is going to blow up in a big way. Large chunk of those institutional loans are variable rate (check the SEC filings) to buy up "single family neighborhoods” and 3) food/water/alcohol type companies. People move spending to essentials and a lot suffer from depression which leads to more alcohol/drug use.
In Short, to keep it simple. Assume that you will be down 10% or so in total after tax income. This will help you reset your budget mentally for the next 12 months. Q4 and Q1 will not be good. So. Don’t tell people you’re doing well if you survive the cuts.
Part 2 - Set a Baseline For Eliminating Expenses
If you’re planning for a -10% in income, you can quickly sift through the unimportant expense items. The easiest one for people in our income bracket is probably dinner/lunch expenses when they go out to eat a lot. This will eliminate a ton of excuses related to cooking. For a simple hobby that’ll save you money, follow BowTiedOctopod
Food: Run the math on all of those $10 convenience store expenses, $50 dinner expenses and you’ll see they put a pretty big dent in your budget. Limit the times you go out. (Note: when you do go out be sure to tip 25%+ to support the working class and local city/community)
This is likely the highest variable expense that eats into your monthly spending by more than 3-5%.
Vacations/Travel: While vacations are great, it’s a good time to mark off some easier ideas to save 2-3%. You can do this by avoiding the more expensive international vacation and go for something lower cost. At current rates Europe may actually be cheap next year so you can go when it’s not freezing with a massive energy shortage.
Alternatively, you can go check out the Canadian Peso and go for a shorter trip up north now that the FX rate has collapsed there as well. Also. Downgrade a tier on the hotel and go to a more mid-range spot which will ensure you don’t blow your budget on your one week off.
Replace Booze With Sports: This is one you should be doing by age 30 or so anyway. Better to pick up any basic sport that is publicly available in your area. Could be basketball, could be tennis could be soccer. Doesn’t matter. Just choose one and go for it. It will reduce the booze consumption and take your mind off the general stress you will feel at work and running your company/business.
Avoid Penny Pinching: After this you can take a look at high-ticket items for many people. Avoid the next iPhone since it is just an improved camera. Don’t cut your basic expenses like iCloud since you need to continue consuming information/producing if you want to move up over the next 12-24 months.
In short, focus on the big one-time costs and avoid penny pinching items that you need to improve your financial position over the next 5-10 years. If you fall behind on important things like software/AI you’re dead in the water when it comes to your business anyway.
Part 3 - More Free Time
While stress is an issue during a downturn, the good news is that lower deal flow means more time to plan your escape from Shawshank.
People say it isn’t a good time to start a biz during a downturn and they are entirely wrong. It is the best time to start a biz because if you succeed you make a killing in an upturn *and* you can sell/raise at a much higher valuation.
If people value your business at 5x earnings today, in a bull market it would be 10x. That’s where all the “value” is anyway. $100K a year becoming a $500K payday is a lot smaller versus a $1M payday for the exact same business and effort.
Consulting: This type of business will always be around. People need experts. Even something niche like Teeth (BowTied Gator DDS). Yet another area where people could be hit by a sizable medical bill.
If you don’t know what to do… Go start a time for money consulting gig while you figure it out. You can switch business models in the future.
Evaluate Your Effort: It’s a good time to cut the losing ideas. We’ve had more dumb ideas vs good ideas. It took 5 complete failures before starting anything successful online. This is a great time to be harsh and ask yourself if you’ve been putting your effort in the wrong direction.
The BowTied community is a good example. Every couple of months a new account pops up that grows and does well (DDS a good example).
That said… If someone was writing for over 12 months and got no traction, chances are they are not experts. They are wasting time and should think of something new. Learn a new skill or figure out a better messaging system. In the end, if you have a built in audience and can’t get any traction, you’re in big big big trouble.
It means you’re wasting time. As the saying goes, if your sales are only friends/family after 30 days, you better turn that around or shut it down. If your friends and family won’t even come back no new customer will.
Self Care: The biggest “zag” is to take care of your health. During downturns people gain weight, develop health issues and generally let stress decide their mood on a day to day basis. This isn’t healthy. Use that free time to calmly think, plan and prioritize for the future. It won’t be “down only forever”. It will be down only until everyone agrees that it’s a terrible economy. At that point, we’re at/near bottom.
A classic image we’ve used for years. When you see people leaving and utterly defeated, it’s time to hit the gas pedal even harder (person on top).
Part 4 - Timeline
Before going through the timeline we assume you’ve already internalized two points: 1) you always have 3-9 months of living expenses on hand - liquid immediately available and 2) you are focusing 99.999% of your free time on building a second income stream in the case that you find yourself unemployed. Remember. If you make $200K a year from a career you’re worse off vs. the guy who makes $150K from a career and $50K online in some other business line. The second person has less downside if one income stream goes to zero.
Q4/Q1: Budgets are being set right now. If you are “tired of your job/career” today is not the time to slack. You *must* work extremely hard and maintain good political status. If you’re an investment banker this is worse for you as you need to push on the performance pedal until about 3-4 weeks before your firm pays out bonuses (could be as late as March/April). Once you survive round 1 of layoffs you can pause and see where you really stand at the firm. Do not switch to a new job/career without a written guarantee for income.
Fast Reduction in Non-essentials: In Q4 you’ll see steep discounts and lower than expected consumer demand across non-essentials such as clothing and computer parts. Anything that has a 5-year lifespan (such as a fridge/HVAC unit) will see numbers plummet. This means end of Q4 and end of Q1 you can get a good deal on appliances as companies become desperate for quotas (also inventory issues)
Spirituality Business: This will continue to grow in the down economy. Not joking. If you are an attractive person you should immediately go into anything spirituality based (tarots, religion etc.). People will look for hope/optimism at a low cost without having to pay thousands for a legal psychologist. Only one person we’re aware of followed this advice and she’s pulling in 6-figures now after 2 years of effort. It’s a grind but that’s better than having no income. From unemployed to $100,000 is nothing to scoff at. Hate to say it but if you’re not attractive and not willing to put your face out there, your prospects are significantly lower in this niche. There is a reason why top sales people are generally attractive females (pharma sales for example).
On that note, you don’t have time to waste so get to it. Don’t lever up. Don’t fall for the “blind lemmings” telling you to buy a home. Stay liquid wait out the storm. Patience for now. Aggression later (after you know you’re safe).
See you in the trenches.
Disclaimer: None of this is to be deemed legal or financial advice of any kind. These are *opinions* written by an anonymous group of Ex-Wall Street Tech Bankers and software engineers who moved into affiliate marketing and e-commerce. We’re an advisor for Synapse Protocol and on the JPEG team.