Sam Holstein

There Is No Such Thing As Passive Income

There’s a certain corner of the entrepreneurship community that’s obsessed with finding the passive income holy grail. They read Rich Dad Poor Dad by Robert Kiyosaki and The 4-Hour Workweek by Tim Ferriss and sign up for Amazon Affiliates accounts and start blogs to post affiliate links and research rental homes to purchase and manage remotely and find out how to get an internet connection in Bali so they never have to come home. For a long time, I was one of those people, searching for the passive income business I could start and never need to worry about again.

Reality didn’t work out that way. After several serious attempts at starting a passive income business, I learned the bitter truth. There is no such thing as a business with passive income.

Imagine you are rolling a weighted ball across the floor. Getting the ball rolling takes a lot of energy, and you’re only paid off with a little motion. Keep pushing, though, and eventually, the ball picks up momentum. At this point, you can keep pushing the ball and make it roll faster, or you can let go, and it will roll on its own some way before coming to a standstill.

A passive income business is like this weighted ball. It takes a hell of a lot of effort to get it rolling, and once it’s rolling, if someone is not walking behind making sure it keeps rolling, it will come to a standstill. You can hire people to walk behind it and keep it rolling, but you still have to oversee the people who are paid to do that. You can reduce the amount of labor required at each step, but you can’t eliminate it. Like a function approaching its limit, you can get infinitesimally close to “not working” without ever getting there.

Passive income is still a much better deal than traditional employment. If passive income is a weighted ball, a traditional job is a weighted cube. Cubes cannot build momentum. You stop pushing, it stops moving.

The problem is that passive income gurus don’t tell people that. They often characterize passive income businesses as money machines. Once the money machine is built, they say, all you have to do is press the big green Go button, and you are free from the indignity of labor.

In my experience, that’s just not accurate. I owned a business that sold therapy apps for autistic children. Some weeks, I really did only work four hours. Some weeks I worked forty. The passive income machine required a lot of upkeep no one warned me about. I had to update apps to be compatible with new Apple devices as they came out. I had to continually add new features to my apps or they would be left behind in the marketplace. I had to run a fairly regular schedule of promotions or I would be leaving a sizable portion of my potential revenue on the table.

There’s also the work of staying abreast of changes in the larger business environment. For autism apps, I had to be aware of what other autism apps were being released, the direction autism treatment was moving, the emerging pattern of hospitals acquiring smaller medical companies in the healthcare industry, and whether changes to HIPAA legislation may affect my business.

These are problems that face passive income businesses in any industry. If your passive income play is to purchase a rental property and take on a tenant, you will have day-to-day annoyances like building maintenance, renovating dated properties, and getting cars that are illegally parked towed out of your parking lots. You will also have industry responsibilities, like staying aware of the latest laws affecting landlord/tenant relationships, pet ownership, and changes to zoning in your area. You will also have market responsibilities, like staying aware of the rental market in your area so your properties remain competitively priced for their quality.

Passive income businesses are the bomb, at least according to me. I’m trying to build one from my writing right now. But it’s important that anyone who is trying to build a passive income business understands that no income is truly passive. All income requires work. You can do that work upfront as a form of investment into your business, or you can do that work as it comes up in exchange for a paycheck, but you will have to work no matter what you do.

This may seem disheartening — your dreams of laying around on a beach sipping Mai Tai’s will never materialize — but this is actually great news, for a few reasons:

  1. Once you accept the price of your dreams is hard work, the world is your oyster. There are very few things you can’t achieve if you are willing to work at it.
  2. What brings us happiness and purpose in life isn’t seeking our pleasure, it’s seeking meaningful work. The most self-actualized people are those who seek out challenges for themselves and conquer them.
  3. Laying around sipping Mai Tai’s on a beach gets boring after about a month. (If Americans were allowed to take month-long vacations, that would be common knowledge.)

And like I said earlier, it’s not as if passive income businesses require you to work all the time. As I mentioned before, there were weeks I was working forty hours, but there were also weeks I worked four hours. More importantly, I got to choose when those weeks were. If I wanted to make this month the 4-hour workweek month and work my butt off next month, that was my prerogative.

That’s what’s so alluring about passive income. It’s not that passive income businesses allow you to stop working altogether, but that they allow you to work when you want, on your terms. There is no greater freedom than that.