Passive income. The holy grail of entrepreneurship. The passport to freedom. The hey to an extraordinary lifestyle that you know it exists but you have no clue where it could be hidden of all places. Of course there is a touch of humour in those first sentences. And of course it is not all humour. Because passive income it might be easier than you think, yet not easy at all, and because it is not the elixir to happiness. But I will happiness for another day.
I feel that the intention to become an entrepreneur usually stems from the desire to free up your time. Which makes perfect sense to me. I am not saying that working for someone else is wrong in principle. On the contrary, it is through collective intelligence that humanity progresses and there are companies that cultivate environments where people can really flourish and innovate in ways that move the world forward.
What is inherently wrong with being an employee is the terms, the essence if you will, on which the professional relationship with the employer is founded. Not only from a financial point of view, although typically this is the profound one.
Time is not scalable. It is a finite resource. Thus, trading your time for money is inherently wrong. Your 1$ has a different value today than what it did a decade ago or what it will in a decade ahead. On top of that, there ways to use that 1$ and multiply it – or lose it, but I assume you belong to the smart ones! But 1 minute of your life it has always been and it will always be 1 minute of your life. And of course multiplicity doesn’t apply at all.
So the essence of entrepreneurship is not to stop working for someone else. It is to stop trading your time for money. And in the way that contemporary economies are formulated this means that you cannot work for someone else – but this is a by-product, not the end goal. Even more than that, it means that you should not work for yourself either because in such a case you would still trade your time for money. Only that the latter wouldn’t come from an employer but from a customer base.
The end goal of every entrepreneurial attempt should be to create a self-sustained operational system that would generate an income for you without your physical presence or work required
This is what I call passive income and below I am laying out some ideas of business models that could create such an income for you.
If you are not familiar with the term, affiliate marketing is the promotion of products or services of other businesses for a commission. Once you establish an affiliation with an existing business, you will most likely receive a unique link from that company. You can add this link to your website, if you already have one, email it to your subscribers, again if you have already built an email list, or simply share it through your social media accounts. Every time someone clicks your link and ends up completing the purchase you are paid the agreed commission. Depending on the agreement you have, you might get paid immediately, monthly, yearly or in whatever else increment you might have agreed. Commissions might be as low as less than 10% or as high as 50%.
In principle, it is a fair arrangement. You get paid promoting a product you haven’t created and the beneficial company reaches an audience and generates sales that wouldn’t have otherwise. You might hear success stories of people that generate a significant income through affiliations and others for whom it didn’t work at all. But in order to answer the question whether you should get into affiliate marketing or not, you need to be crystal clear with what you are trying to achieve.
If you are trying to build your own brand then use affiliate marketing with caution since it can be very disturbing for your audience and actually take it away from you. I am not suggesting you don’t use it though, quite the opposite. I think it can be a nice additional stream of income. Just let it live in the background and never make it your main focus. Your main focus should always be your brand.
In any case, if you get into it you need to mind a couple of things.
Always promote products or services that you use and you are satisfied with. You always need to provide quality suggestions to your audience or you will start losing your credibility. Also, if you are a user yourself you will be able to answer possible questions relating the product in query.
If you have a company, make affiliation with brands that suit yours. If for example you have a business about sports clothing it probably makes sense to affiliate with a sports nutrition brand while it would seem odd to promote stationary products.
- It’s simple and it’s easy. You can start making a profit without having to create the product.
- If you are, or used to be, an employee and you are just starting out as an entrepreneur then it may help you surpass one of the hardest obstacles: asking for money. The moment that you will see money coming into your account from someone that is not your employer, you will make a big psychological step that will speed things up.
- It is a source of income from something that is not yours. So it is not secure since you cannot rely on your efforts only. You are creating an income but not an asset.
- If you are building your own brand, it can be distracting both for you and for your audience.
Books / eBooks
Books are not going to be irrelevant any time soon. In fact, with the exponential technological growth with machines replacing human labour more and more, information products become more relevant than ever and so are books. But it is true that the technological growth has affected both the publishing process and the reading experience. Now we have books but we also have ebooks. You can publish a book using a traditional publisher or you can self-publish a book.
It can be confusing if you want to create a passive income that way. So, let’s clarify things a bit. Yes, it is possible to write an ebook over a weekend, uploaded on a website with a shopping cart and promote it through your social media channels. And you might have some income out of that. But not a passive income. Certainly not one that you would be able to live of.
It is less than 1% of the books published that become best-sellers and generate significant income to their authors for months and years to come. And you need to aim to write such a book. This is a huge and relatively long-term project. It will take a lot of effort to write a book of great value to the reader and it will take even bigger effort to market it sufficiently.
The one-weekend ebook is something that can help you build an audience, grow an email list and well, introduce you to the practice of composing a book. And of course there is a wide range between a best-seller and a one-weekend ebook. If you want to create an income you need to write a book of value. If you want to create a significant income you need to write a book of great value. And if you want to create a passive income you need to write a book of value that will be able to stand the course of time.
- Becoming a writer gives you authority. And authority can go a long way. It can open a whole new window of opportunities. Public speaking and invitations for interviews and any kind of events are just a fraction of them.
- Networking, which will enhance the opportunities mentioned just above.
- It is a one-off project. You do it once and it’s done. Forever.
- It is a long-term project that requires huge effort and has a very big chance of failure. But because of that, it can offer huge rewards if succeeded.
The online courses have become increasingly popular with the explosion of the web. The process is quite straightforward. You create a series of videos sharing a knowledge that you have on a specific topic. Whether recording yourself talking, capturing your screen while demonstrating, creating a series of slides or, most likely, a combination of the above, the end product is a series of lessons that the customer has access to following a purchase.
You can upload your course on your own website or you can approach existing platforms like lynda or udemy if you want to avoid the hassle of creating and managing a website. Just to be frank, and as I have mentioned several times in other posts, I need to state that I always favour the former option. And if you chose that one indeed, to have your own website, some additional marketing effort will be required that should probably include a few webinars as the ultimate selling points.
Worth mentioning that becoming an expert in a topic that you aren’t already but you are interested in is not as hard as you imagine. If you start putting the effort in learning about the one thing that your heart beats for, it will be sooner than you think that you will be in a position to start teaching it.
- Creating courses on a topic gives you authority on it. You will have similar speaking and other similar invitations as with becoming a writer.
- You will significantly grow your fan base.
- It requires constant updates as you will have to keep up with current advances and trends.
Software as a Service (SaaS)
Pieces of software, in the form of a web solution or a mobile app, can be very rewarding in terms of financial returns.
Don’t think of creating something extraordinary big and complex like a new operation system or a software giant like Adobe. Dream big, start small.
Probably the best way to approach SaaS is by identifying everyday struggles in your industry or in any industry. Any task that requires a lot of paperwork is usually an opportunity. Find a small but really annoying problem and create a digital solution for it.
Instead of selling the app as one-off, you can create a subscription based model where your customers will have to pay a recurring fee to keep using the service.
I would say that if you are a software engineer or you know someone who is and you could partner with, it is one of the most attractive types of businesses. On the other hand, if you don’t have the knowledge or a partner who does, it is one of the worst models to consider. Outsourcing the software development, other than the financial investment that requires, it can be approved a way more complex process than you imagine. You will end up in frustration trying to communicate your ideas to your developer(s) while losing money in the process.
- It is a scalable business with potential for very high returns and expandable operations.
- In most cases, an upfront investment is required. Depending on the kind of software you want to develop, additional zeros might be added at the end of that investment sum.
- It is very difficult to control the process if you are not a software engineer.
- It requires constant updates to keep up with the advances in the industry and stay ahead of the competition.
- Relatively high customer service demands should be expected.
What I left out and why
These are the little ads that are blinking on sidebars of several websites. You don’t select specific ads but they are from relevant industries. You are getting paid depending on impressions, clicks on the ad or completed purchase after clicking on the ad according to what you chose and the rates change accordingly.
There are quite a few things that I don’t like with the AdSense. I don’t like the aesthetics of it. I really believe that they destroy your website and they do affect your brand identity. I don’t like the fact that you cannot fully control the displayed ads. And last and most importantly, you need a ton of traffic to generate a meaningful income. If you manage to drive such a huge stream of traffic to your website and you chose AdSense as your main income generator, I think it would be such a lost opportunity. There would be so many more interesting and rewarding things to do.
On the other hand, I left the creation of a physical product out not because I don’t like it but because it requires particular attention. So I will have to dedicate at least one post on it, which I will at some point. In fact, it is the most tempting option for me. But this doesn’t necessarily mean anything in particular. You should chose the kind of business that you feel it suits your skills and personality best.
In the case of creating and selling a physical product, it is possible – and to a certain degree advisable – to outsource everything. Design, manufacturing, fulfilment, customer service. And it doesn’t necessarily require a financial investment upfront. But to setup the whole system can be more complex than the other types of passive income businesses discussed above.
Active engagement for passive income
Before you go it is important to highlight a few things to avoid misunderstanding or future disappointment. Passive income is the end of the road. To get there you need to be actively engaged with every aspect of the business you are trying to create for a prolonged period of time. It is going to be stressful. Very. It is going to be tiring. Very. It is going to bleed your body, your mind and your soul dry. This is the main reason that, while a lot of people would like to do that, very few actually do.
If you are just starting out and you are listening to serial entrepreneurs advocating that you can create a successful business in 2 or 3 months, don’t expect this to happen with you. It is possible. For them. Not for you. Why? Because they have done through the process again, probably several times. They know the traps and the tricks. You don’t. And because they have built an audience that is ready to be recruited in every new business endeavour they attempt. You probably don’t have that audience yet. You shouldn’t expect anything amazing to happen in less than 6 months, which still I think it would be fast. To be very realistic here I think it will take you around 2 years to establish a presence as a business and be ready to start putting things in the auto-pilot. So, hold on!
Speaking of an audience, if you know that you want to get in the process of creating something but you are still considering what that could be or you know but you have suspended it for a certain period of time for your own personal reasons, you could still start building an audience. Just start being a bit more active in social media and try to build a followers base. Creating an audience takes time but it can come handy in several ways once you have it.
In whatever you do, do not make decisions depending solely on potential financial returns. The process is hard and long and you need to love what you create and the everyday tasks it requires in order to endure through. Listen to your heart, follow your gut feeling and if you put in the effort the money will eventually come. And give yourself the time you need. You need time to understand how things work. Time to experiment. Time to make mistakes. Don’t rush things if you don’t have to. If you are an employee don’t quit your job. Start your own project on the side. And go full speed and give it your all when the time will be mature enough for that to happen.
Thank you for reading! If you have any thoughts on what you just read, either good or bad ones, I would appreciate it if you leave a comment below and let me know. Feedback is invaluable in one’s strive for progress. And if you choose to share this post it would mean the world to me! Until soon!
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