The Great Passive Income Hoax

• Tweet

• Tweet

Business passive income is a lie.

It is one of those myths that has been perpetuated for so long by so many experts that we no longer question it’s validity… even though we should.

After all, who wouldn’t want an endless stream of cash flowing into their bank account without lifting a finger? That’s the passive income promise and it has wide appeal.

Network marketing companies are built on this dream, seminar promoters have gotten rich selling it, and neophytes love the concept.

In short, selling the passive income dream is big business. The only problem is… it’s all a lie.

Let’s Put This Nonsense To Bed And Set The Record Straight…

Unless the “passive income” comes from a truly passive investment source like a publicly traded stock, bond or annuity then there’s no such thing as passive income. It doesn’t exist except through passive investing.

Take my ebooks as an example…

In the get-rich-quick world of internet marketing they would be considered passive income. I write it once, post it for available download, and watch the cash roll in as people buy the book electronically and download it automatically. I never lift a finger and the cash just flows into my bank account.

Right?

Well, not exactly…

First I have to spend months researching and writing the book (and that’s only after I have a valid product idea based on my extensive knowledge of my target market’s needs learned from years of directly working with them). Then I have to spend a bunch more time learning all the technology to create the book and implement the automated sales system. I have to invest in the cover, software, and monthly overhead to run the system. I also have to spend more time learning how to market the book and actually implementing all the marketing tasks so that people who need the solution contained within the book can even find it. I also have to answer customer inquiries when someone can’t download the book and answer questions from paying customers after they buy the book. Oh, and don’t forget that I still have to account for my sales by maintaining proper records, file the company tax return, get a government business license, satisfy trademark requirements, record the ISBN number, battle copyright violators, and about 30 other things I failed to list here.

Hmmmm, that doesn’t exactly sound like passive income to me. It sounds like a lot of work!

The truth is I had to put a ton of work up front before I ever made my first dime on that ebook and still have to run the business once the product is selling.

The “experts” will argue with my example by claiming I could outsource the ebook research and writing to a virtual assistant in India or the Philippines. I could also outsource all the other work related to the ebook business and recline onto a hammock sipping umbrella drinks while the cash rolled in.

I’ve tried it and here’s the problem. You either write it yourself, or pay the price through extensive editing of a VA’s writing. You either do the work or you pay the price in training, research and management of the VA. It’s all work in the end. There’s no getting around it.

One way or another, you pay the price.

Again, there is no such thing as passive income unless it comes from a passive investment like dividend stocks, bonds or annuities. Business passive income is a lie.

The Difference Between Passive and Leveraged Income

E-books, membership sites, royalty income and all the other models bantered about in the get-rich-quick / lifestyle-entrepreneur world are leveraged income models. They are not passive income.

Leveraged income models are characterized by taking risk and paying a large price up-front in terms of time and/or money with the hope of reaping disproportionately large rewards down the road. It is amortized income because you get paid down the road on an up-front investment: it is not passive income.

For example, I spent an extraordinary amount of time up-front researching and writing my ebooks. I then spent even more time marketing the ebooks to attract targeted buyers through the internet… before I ever made a dime.

Buyers get the benefit of $50,000 worth of my time and highly edited, specific knowledge efficiently delivered for just a few dollars. (I’ve always said books are the greatest deal in financial education. Now you know why.)

The only reason it makes business sense for me to do this is because my up-front efforts will produce an income stream for decades into the future with minimal ongoing effort. In addition, they provide an affordable entry-level product that builds relationship and trust with potential clients for my more expensive products and services.

However, it is not passive income.

I’m leveraging my time and knowledge through information technology to deliver a long-term income stream that amortizes the massive price paid up-front before the first dollar is ever earned. It is hard work.

That is how leveraged income works. It can be a good business model because it is scalable and offers many benefits, but it also involves various risks, an up-front investment of time and money, and plenty of good ol’ fashioned work.

The Final Nail In The Coffin

Passive income implies something for nothing. Just sit back and watch the money roll in while you do nothing. After all, it’s “passive”… isn’t it?

Sorry, no such beast exists in the business world so get over it and don’t waste the mental space on such nonsense.

This isn’t just a rant. It is important to get crystal clear on this issue because if you build your business model on a false premise you will get disappointing results. I help people design their wealth plans every week as part of my wealth coaching practice, and there is a right way and a wrong way to apply leveraged income.

The wrong way is the passive income hoax (which also happens to be the most common way). The right way is to design right into your plan the up-front costs, time lag, and ongoing effort required relative to the income generated. You have to plan for the lack of cash flow while you pay the up-front costs. You have to get this stuff right or you won’t succeed.

Yes, you can work smarter instead of harder.

Yes, you can create more income with less effort through various forms of leverage.

But there is no such thing as passive income in business.

It is a lie.