In this episode Derek Gehl debunks the myths and BS surrounding passive income online. Every day new entrepreneurs are falling into this “passive income trap” only to be sadly disappointed when they learn the truth the hard way. Make sure YOU know the truth… listen to this episode.
Transcription Episode 68: The Truth About Earning Passive Income Online
Welcome to the Entrepreneur Ignited podcast. This is your host, Derek Gehl.
I want to do something a little bit different in this episode, and I’m not actually interviewing anybody. It’s just me going solo, and I’m actually sitting here in a hotel room in Melbourne, Australia. I’m just preparing for an event that I’ll be speaking at tomorrow to about 850 people.
I’m sitting in my hotel room here, and I was scanning, just doing some research, reading some different blogs and stuff like that. I came across this article and it started talking about how to make passive income online.
I’ve been seeing this for years, and so I wanted to do this podcast myself, because I really want to clarify something. Something for all the people that are just getting started online, chasing the elusive dream of making passive income online.
Before we get started, let me tell you right now, there’s two ways you can look at this podcast. One, it’s either here to shatter your dreams (which really it’s not) or two, it is going to reset expectations and give you clear understanding of what an internet business, or any business for that matter, really is all about.
Here’s the reality…there’s all sorts of websites and podcasts that are preaching the elusive passive income online dream. Claiming to have a magic bullet of some sort, a system, a strategy, a way for you to run down this path and start earning passive income online fast.
One of the things I want to make very clear is I’m not here to debate the validity of their strategies and the ability of those strategies to make money. Rather, I’m here to shed light on the truth behind their ability to generate passive income online.
Now I’ve been an Entrepreneur for almost twenty years. As far as I can tell, any active business that you’re starting and growing and running requires some level of effort.
What is real passive income?
Well, when I think of the best passive income, I think of investments where I can put my money, and without any additional effort, other than putting money in, I get money out of it. That could be dividends from stocks and bonds and stuff like that. Different types of passive income include investments of stuff that could be rental properties or real estate investments that are generating income for me.
Once I’ve invested in them, set them up, they generate income for me, but they don’t require me to run them every single day or have weekly involvement in it.
Now have I met Entrepreneurs that have set up businesses are making passive income online for them? Yes, but realistically, those businesses are typically larger, more mature businesses that they’ve grown up and now have a team in place that is able to continue to grow and run that business for them, and drive that growth and send them a check.
Their level of involvement other than maybe sitting on a Board or something like that, is far, far less, but is that something that’s going to happen in your first year? Your first two years? Your first five years in business? Probably not.
When you are starting out as an Entrepreneur, and when I say starting out, we’re talking the first five years, the first ten years, put that dream of passive income online aside. No business you’re going to create is going to be truly passive.
I mean, let’s break it down. When you hear about how to make passive income online, one of the most common things people talk about is affiliate marketing, but the reality is, with affiliate marketing, if you want to get good at it that takes a lot of time. A lot of resource to invest and figuring how to do it, and then continuing to drive promotions. Continuing to drive traffic, continuing to grow that business, that’s not passive.
There’s no such thing as “set and forget” with affiliate marketing.
Sure, back in the really early days of the internet, you could put up a website, get it ranked, and it might sit there for a year or two with little involvement, and generate some income, some clicks, traffic, affiliate commission. Sure, passive income online did happen in the early days, but those days are well over a decade plus behind us. Fifteen years plus behind us.
eCommerce, physical products, sourcing products, shipping them to, even if we’re Amazon Fulfillment, fulfilled by Amazon, selling on Amazon. There’s support, there’s maintenance, there’s work that’s required. Digital products, eBooks, membership websites. They can create incredible income, but you still need to market them. You still need to grow them. You still need to maintain them. That is not passive income online.
Let’s go offline, let’s talk about MLM and network marketing. That’s not passive. I’ve never met anybody successful in network marketing in MLM that built a down line and walked away from it and got rich.
Anybody I know that is actively making really good money in network marketing is working their ass off to grow their down line, to coach their down line, and to make it happen.
I mean, the reality is is any business, offline or online, is not passive.
Here’s the beauty of the internet business. Yes, you can start them with less investment and less risk, in your spare time. Once they’re up and running, you can automate a ton. I mean, I run a seven figure business and I don’t have to have a physical office anymore. I can use technology and people to automate where I can, but it’s far from passive income online.
I mean, it’s great because it allows me to work wherever I want, I get to take long vacations, I spend my summers up in Whistler riding my mountain bike, but the income is not passive.
Now I want to, I guess, reframe. Reframe how you think about income as an Entrepreneur. Your goal as an Entrepreneur is not initially to create passive income online. Rather, your goal is to create something that I call Scalable Income.
For example, if you create a membership website, and you invest your time and resource and energy to create that site, and you charge $27 a month for people to access that site. Because you don’t have to now deliver whatever it is you’re training one to one, you can now do one to many, and you don’t have to work individually.
Now you can scale. If you have one hundred members, you’re earning $2,700 per month. If you have a thousand members, you’re earning $27,000 per month, but your personal workload does not increase by by ten times. You’ve created scalable income.
Ultimately, this is why we become Entrepreneurs – we’re tired of trading our time for money. We see and understand the limitations it imposes on us.
As an Entrepreneur, you now have the ability to unhitch your time from your money, so you can make more and eventually work less, but as long as you have a business you are trying to grow, it’s not passive.
It’s going to require some level of involvement until you either A, sell it or exit, or B, you get to the point where you have a big company that you can literally groom somebody that you trust to take the helm, compensate them accordingly, and let them send you a check every quarter, and check in with them occasionally.
Do I know Entrepreneurs that have achieved that? Yes. Did it happen in year one? Not even close. These are matured businesses. Is what I’m talking about here a bad thing? Am I crushing dreams? No. Hell, no. Starting a growing and growing a business takes time. It takes effort.
The term passive income online is used too loosely today. You know, I go to these websites of people writing about passive income online. I’ll tell you right now, they’re working their asses off to create this supposed passive income.
If I were to really break it down, here’s the path to real success, to financial freedom. What is financial freedom? Financial freedom is when you achieve real passive income. Where you don’t have to do any work anymore. You have enough money coming in from investments to maintain the lifestyle that you want.
The Path to Creating Passive Income Online
Here’s the path as an Entrepreneur working out how to create passive income.
- Step One: Bust ass to start and grow a business. A business that can create scalable income. A business that now earns money independent of the time you put in. If you put in forty hours a week, it doesn’t matter. Keep putting in forty hours a week, you make $10,000 a month. You can make $100,000 a month, but my point is, is it scales independent of the time you’re putting in.
- Step Two: Once your business starts generating profit, make sure you’re now taking the profit or percentage of that profit and investing that income into vehicles that in the future really can generate passive income. I’m not going to get into what those vehicles are. I’m not an Investment Advisor. There’s lots of people out there that can help you with the types of passive income vehicles out there.
- Step Three: Once your investments are generating enough passive income to support the life you want, now you’ve made it. You’ve now achieved that elusive financial freedom.
What’s that number? Honestly, that’s up to you. It depends on the life you want to live.
I know people that are happy with $100,000 a year. I know people that want millions of dollars a year, but the point is this, as an Entrepreneur, you’re building a mechanism that is going to allow you to achieve financial freedom through real passive income, through investing the profits from your scalable income that your business creates, and creating the best passive income by investing it.
You’re going to be able to do it much faster than you would with a job, simply trading your time for money.
As you continue to trade time for money, typically all that’s going to lead you to is retiring at the age of 65 or 70 with an income that is typically less than you were making when you were actually working. Not only will it allow you to achieve it faster, but having the business removes the ceiling on your earning potential, so you can get there faster, and you can have a far better retirement.
There you go guys, that’s it. That’s the truth of how to create passive income.
To wrap up this episode, I want to leave you with my favorite quote about entrepreneurship, and that’s this. “Entrepreneurs are willing to do today what others will not, so they can live life tomorrow like others cannot.”
Go forth. Start your business. Create that scalable income. Invest that income wisely to achieve real passive income, and make your life extraordinary.
This is Derek Gehl signing off and I’ll see you in the next episode.