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The Truth About Passive Income: It's Not as Passive as You Think

Don't believe the hype: passive income businesses require work, just like any other business. The key is to find a business you're passionate about, rather than chasing the elusive dream of passive income.

Many entrepreneurs constantly search for the perfect passive income business that requires minimal effort and generates a consistent revenue stream. The idea of passive income is alluring, but it is essential to understand that it is not a realistic goal. There is no such thing as a genuinely passive income business.

A business requires work, no matter what form it takes. While it is possible to minimize the amount of labor required and automate specific processes, there will always be some level of effort needed to keep a business running. Even if a company is generating revenue, it still requires maintenance and oversight to continue doing so.

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

A passive income business is like this weighted ball. It takes much effort to get it rolling, and once it’s moving, 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 moving, but you still have to oversee the people who are paid to do that. You can reduce the required 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, and 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 not accurate. I owned a business that sold therapy apps for autistic children. Some weeks, I did only work four hours. Some weeks I worked forty. The passive income machine required much upkeep that 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 regular promotions schedule, or I would leave 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, and 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 illegally parked cars 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 their proponents. In reality, they are a minefield. If you’re starting a business, you should be aware of the challenges and pitfalls that come with it. You’re better off creating a business you’re passionate about rather than chasing after the elusive passive income dream.