Scott H Young

Why I’m Not Trying to Build Passive Income


I’ve written a few articles mentioning my desire to be able to earn a full-time income from this website. From that, people have written to me claiming that I want to build a completely passive income stream and get rich without doing any work.

That hasn’t been my strategy at all, with this business. Sure, I expect my income stream to be somewhat passive, because that’s the nature of running a business. But I’m not planning on stopping working anytime soon. Nor do I expect that this website will eventually have the capacity to provide decades worth of income without any effort on my part.

The Easiest Way to Earn Money

The easiest way to earn money is by working. Truly passive investments like bonds or stocks can earn money without any new effort. But this is slow, and unless you already have a lot of money, it isn’t a good way to make money.

No, the best way to make money for someone who doesn’t already have a lot of money is by working. That shouldn’t be a big surprise, but every online investment guru makes it seem like starting a passive revenue business is the easiest way to spend your workdays at the beach with piña coladas.

Running a Business Requires Effort

Everyone I know that runs a successful business works at it full-time. Some of them work at it even more than full-time. That includes blogs and online microbusinesses.

I’m not saying there aren’t advantages to working on a business. I get to choose my own projects. I have complete creative control and freedom to choose the terms from which I work. I have the ability to work just as easily from any location in the world. I also get the satisfaction of creating something from scratch.

But not having to work isn’t one of those advantages. If you build a business, even one with a healthy passive revenue stream, you need to keep working at it.

The Income Curve

Running a small online business simply has a different payoff curve than other forms of work.

If you work at a job or do freelancing work, that has a sharp payoff curve. You get paid immediately after the work is finished and then you stop being paid. If you work partially on royalties or long projects, your payoff curve may be several months in order to earn your income for work paid.

The difference with running a business is that the curve is longer. I don’t earn all of my money immediately, but over a longer period of time. I’ll write a book that will have a small spike after it is released, with a long tail of revenue that will continue for years.

The income curve doesn’t mean you can just sit back and watch the money roll in. It just means the income is spread out over a longer time period. In five years, I’ll still need to work to sustain my income, and I will in ten.

The Myth of Outsourcing

Some people have asked me whether I’ll eventually outsource the work for this blog. Hire a product manager to manage the products. Hire writers to fill the blog with content. Hire an editor to review the content and publish it.

I may hire someone if the website demands it. However, I’ve seen from other people who have taken this approach, that growing their business increases their work instead of decreasing it. As you hire more people, you need to generate a higher income to support their wages. With more work you need to do more work coordinating the efforts of the people you have hired.

For some people, this approach may be great. They get to build something even bigger and reach even more people. But, I think if your goal is to grow your business to the point where it doesn’t require any work, you’re deluding yourself.

Building a Lifestyle Business

My goal isn’t to stop working. I will probably retire later in life, at which point I’ll live off my savings and investments. But, I don’t expect to create a fully autonomous engine that can support me perpetually.

Instead, I’m trying to build a business that can serve as the platform for a career. A business, that with continual pruning and improvements, can sustain a full-time income. A business that continually advances my knowledge, so even if it tanks, I’ll have the skills to easily return to my former income level.

Realistic Entrepreneurial Goals

If your goal is to work enough that you never have to work again, I don’t think starting a business is the best path to that. I know some people that have been able to do it, but for every person I know that can live entirely off passive income, I know twenty other people that require work to sustain it.

If, however, your goal is to build a business that will support your lifestyle, go for it. A business is a different kind of career which can allow you personal and creative freedoms not available through a job.

My goal is to be able to support myself full-time through writing. Not to quit working and retire at thirty, but to build a career that is a little different than most. I believe in investing, but I know the best way to make money is to work.


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14 Responses to “Why I’m Not Trying to Build Passive Income”

  1. Elliott says:

    Scott,

    It’s wonderful you’ve found your passion and are developing a business around it.

    There are plenty of people, however, who build passive income by working hard for 2-5 years, and then have a passive income stream to retire on from building teams and using leverage. Not only is this far more common than you might think, it’s my belief that ANYONE can learn a business that allows it to happen for them. Of course, if someone doesn’t believe it can be done – then they are also right (for themselves).

    Many people are looking for time freedom, which a non-passive income stream simply does not deliver.

    To Your Success,
    Elliott

  2. Scott,

    I find elements of this article confusing. Perhaps it is that you have a different definition of passive income than I do.

    For example you write, “I don’t earn all of my money immediately, but over a longer period of time. I’ll write a book that will have a small spike after it is released, with a long tail of revenue that will continue for years.”

    To me that fits exactly the definition of passive income. Now only a portion of your income is passive, but if you are getting paid for a book you wrote some time ago, you are earning a passive income.

    Perhaps you are really rebelling against the hype that you can create a passive income without doing any work. Of course that is non-sense. Most business won’t create a substantial portion of the income in passive income – but some of it might be. And, if over time you can increase that amount it will be an important part of your business. You may never stop working, but you’ll be building your business off a higher base. Eventually it may go a long way to help with retirement.

    For example, in my business I earn close to $1000 a month in passive income. Obviously I don’t live on that. I have a job as well. The passive income does require a little work to maintain, but I call it a residual effort.

    Now my goal is to increase that passive income. If I can grow it 5X it’s current amount then I have the OPTION of leaving my job. Will I, not likely, I love my job, but I have that option.

  3. Anthony says:

    I second Danny’s confusion.

  4. Nice one, I have been thinking about this lately also.
    I was thinking, I am not going to work at my summerjob this week, so I can do a lot blogging, and that will make me money also hopefully, but how much would it be?
    When I work a week at my summerjob, I earn 5x€45 = €225. There is no way I am going to make that with blogging!

    And still I don’t work..

    Nice post Scott!

  5. What are the kind of small business you develop and run (other than this blog and your upcoming book) ?

    A description ?
    A link ?

    Thanks and have a nice trip thru Europe

    ciao
    alexander

  6. Eric Post says:

    Thank you, thank you, thank you.

    I really enjoyed this article. I have been struggling with the concept of setting up a on-line business since I got into Internet work ten years ago.

    I saw so much hype about being an information broker and writing an e-book and being set for life. You have made a good point that it doesn’t work that way. It is still a job. Just with a different payoff from a traditional job.

    Thanks again, Scott. I enjoy your writing. I wish you luck in your goals and projects.

    “Laughter is an instant vacation. Take one now.”

  7. Steve says:

    This is really a refreshing take on passive income. I still believe that it is helpful to have the concept of passive income in mind. But I believe that our paradigm needs to be one of working actively. Particularly in the United States, we have a mindset of instant gratification, so too often, would be entrepeneurs give up because they don’t see instant success. This is a great corrective to that.

  8. Enrique S says:

    I don’t have “never working again” as a goal, either. I think I’d go crazy. Like you, I’d like to be able to choose what I want to do, and not have to rely on a job for my primary source of income. Whatever passive income that I make decreases the need for the job. You have more experience than I do about blogging, which I don’t characterize as “passive” income. I’m sure that lots of effort goes into the researching, writing, and editing of your posts. The passive part comes afterward.

  9. Scott Young says:

    Success Professor,

    Passive income has two unofficial meanings, in my mind:

    1. Money earned indirectly.
    2. Money earned without continuous work.

    In the first case, then yes, I am trying to earn passive income. But in the second sense, I’m being realistic.

    I’m trying to contrast running an online business like this website with genuinely passive investments like stocks/bonds.

    -Scott

  10. Havana says:

    What a down to earth article, Scott. :) This is terrific.

  11. Marcy says:

    I caught myself nodding in some areas of that article. The part wherein you say that you need to work in order for your business to run. That’s a something everyone should learn. Given that we have our own businesses, it doesn’t mean that we can stop working altogether.

    I also agree on the part of outsourcing. :)

    Though I must say that I too got confused about the passive income part. But thanks for explaining. I read your comment above :)

  12. […] H. Young tells us why he’s not trying to build passive income.  He talks about realistic entrepreneurial goals, and how working may br the easiest way to earn […]

  13. Dave says:

    This isn’t really about this article, but are you aware that you have advertisements for Dianetics? I hope this wasn’t you decision; something as insidious as Scientology doesn’t seem congruent with your site.

  14. Lori Winslow says:

    I agree with the confusion of the post. I realize that you are not trying to create passive income, but by selling products online that anyone can purchase day or night without direct input or advertising from you, isn’t that passive?

    Perhaps you were just trying to make the point that it is not your actual business model.

    Overall I think you are on the right track.

Debate is fine, flaming is not. Pretend that this comment form is a discussion taking place in my house. That means I enjoy constructive criticism and polite suggestions. Personal attacks, insults and all-purpose nastiness will be removed especially if it is directed at other readers.

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