April 20, 2017 reinierh

Passive income – 5 considerations before you take the plunge on your own internet business

6 Minute read

Passive income is a catchphrase with mass appeal. Set it up and watch the money roll in. Sign me up!

So why are so few people embracing this? What are the chances of success and profit? Is it right for me?

In this post I explore 5 considerations, a starting point if you are considering taking the plunge.

The basics of passive income generation:

  • Passive income refers to an investment that automatically creates value without a real-time presence. Look at Pat Flynn’s great site for the best overview I have found (he made 1.8 million through passive income businesses in the last 12 months).
  • The first thing you will learn is that it’s not passive, you will have to invest a lot of time or money up front, and often maintain it.
  • Examples: an online business, ebook, or online course. Real estate and financial products like RRSP’s, stocks, and mutual funds are also passive income streams, but I argue they are fundamentally different than making your own business. You are buying a pre-packaged asset rather than building one.

5 Considerations

  1. Can you shift to an entrepreneurial mindset?

At first, passive income doesn’t feel natural to most people. We are accustomed to instant gratification and rely on others to make our business for us. That’s right, most of us are perfectly happy to have others tell us what to do and make them money through a job.Then, when we invest this money, we want others to tell us the best place to put it (I’m one of these people). In other words, in our business there are always middle men between how we create value and how we get money for it. But building a passive income business is not for sheep.

It’s about thinking of yourself as a business.

It’s about delayed gratification and initiative. To take chances with no guarantees. It’s about designing assets, rather than buying a pre-packaged asset. With this in mind, you should cut out as many middle men as possible while maintaining an autonomous income stream. Aim to build something with greater returns than your average 5% stock market return. Consider examples of how others have built passive income businesses as archetypes for inspiration, and customize these models till they suit your goals, skills and passions.

 

  1. Should you align your passions to the business?

For most this is a no-brainer, with passion comes the drive to make things a success and the authenticity people value. Yet there is something to be said for investing without the cloud of emotion to bias your decision-making. You could invest as a silent partner in a business you know nothing about, or buy real estate in a foreign country. A transaction. Here I would argue that you need to look back at question 1 – are you just buying what another middleman is offering? What is your added value?

Without passion, it cannot be a unique business – only an investment.

For e.g., even if you are highly skilled in a particular area, without passion you will not have the drive to create something radically new or the energy to create something with real positive impact. That seems like a waste of an opportunity to me. You are going to have to put time and energy into building the business anyway, why not make it something unique and shines your light onto the world?

 

  1. Can you muster the energy to do the things you won’t like?

Even if you align the business with your passions, you will still have to do things you don’t like to realize your business. Often for creatives this means setting up the administrative things, or for business types this means designing the tangible experience. Here is a link to some creative templates and here is a link on ideas to help the administrative things. Regardless, you have to invest your energy, as well as time or money.

Be clear with yourself how much energy you are willing to invest, and automate energy drains.

Research beforehand to be realistic about what you are getting into, nothing feels worse than not getting the opportunity to either fail or succeed because you didn’t launch.

 

  1. What kind of return can you expect for your effort?

I did a bit of research and came up with the following illustrative table showing effort to get typical passive income businesses onto the market, plotted against their reported returns. Of course this chart is highly subjective and just a rough guide! Naturally you need to account for how ‘passive’ you want it to be, your particular skill set, your passions, synergy with current investments, and on what schedule you want your returns to deliver. It’s probably the fastest and reliable way to become a millionaire without selling your cousin’s house.

The best opportunities are perhaps combinations of different tactics, yet to be brought to the mainstream.

An example I like of this is how you can bring together a product review blog and use amazon as an affiliate to serve as your own ecommerce platform, giving you kickbacks for every product sold but without the hassle of setting up your own ecommerce platform. Here’s more detail on that idea from a guy named Richard. His site has inspiration on 43 types of passive investments.

  1. The chances for success

Here is a similar chart showing the average success plotted against the anticipated return. Bear in mind if everyone is swarming to a business type, e-courses for example, you can expect that space to heat up quickly.

The biggest insight for me is that synergy between your portfolio online businesses is the biggest contributor to your success.

For e.g., leveraging your subscriber list to market your e-course to, and then your product review site etc. Currently, youtube videos and advertising seems a decent way to break into a passive income, if you are willing to put your face in front of the camera and explain your unbiased review of a product or service. Unfortunately, you might have to ‘plan’ to have your cat jump at you in the middle of it to bump your ratings.

 


Passive incomes are a great way to get into entrepreneurship as they have a fixed period where you invest your time, money and energy. They are also a great opportunity to make your positive impact on the world. In sum, if you are looking to build your own passive income business, I would start with being aware of the shift in mindset it will require and to be weary for taking the easy route by just dumping your money with someone else’s investment. I hope you can conclude that anything worth doing is always more sustainable for you in the long run if you are passionate for it, and that you can step into it knowing your chances for success, return and impact on your energy.

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P.s. This post was inspired by Gabriella, with her myriad of e-businesses attempts and successes.