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Real talk about passive income: What it actually means to make money while you sleep

We’ve all pictured it: Retiring to someplace sunny with beaches. Reclining poolside drinking fruity beverages with umbrellas sticking out of them. Money, streaming into our bank account from our massively successful online business — without us having to lift a finger to make it appear there.

This, my friends, is the dream of passive income: of creating a business that lets you make money while you sleep.

It’s a pretty picture.

It’s also — and I’m sorry to be the one to tell you this — a myth.

Let me explain.

What it really means to “make money while you sleep”

The words “passive income” get thrown around a lot in conversations about online business. It seems to be a thing that a lot of people are chasing: the promise of somehow, someday, being able to throw off the shackles of the humdrum 9-to-5 and be able to spend their time how they want.

Exhibit A: This post in the Facebook group we run for students of our online course, Zero to Launch:

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Don’t get me wrong — it’s a noble goal. And, if you’re smart and you find the right idea and build it in the right way, it IS achievable.

But when I see too many prospective online business owners going dreamy-eyed at the prospect of passive income, I start to worry.

I worry that they may be starting an online business for the wrong reasons.

Even worse: I worry that, when the reality of starting an online business doesn’t match up to the fairy tale they’ve created in their head, they may wind up quitting before they even see whether they and their business have what it takes to go the distance.

So in this post, I want to have an honest conversation about passive income — what it actually means to make money while you sleep, and what it takes to get there.  

Let’s start with point #1:

Real talk #1: Making money while you sleep takes A LOT of work while you’re awake

The first thing to understand about “making money while you sleep” is that it doesn’t mean that you never have to spend time working.

What it means is that the relationship between the amount of time you spend working and the amount of money you earn from that work changes.

Here’s how it works in most typical work setups:

  • You go into an office.
  • You give your employer 40-60 hours of your life each week.
  • Your boss pays you a set amount of money in exchange for your time and your talent.

In other words: there’s a 1:1 relationship between the amount of time you spend and the amount of money you’re able to earn. There’s also a limit to how much money you can earn for your time, since most jobs have pretty finite ceilings when it comes to how much they can earn.

When you make the decision to start a business and start building products, that 1:1 correlation between time spent and money earned disappears.

And sure, on the one hand, that means you can achieve amazing results like earning $100,000 in a single day, or earning money from a product that you made years ago but have long since ceased to promote.

And yes, some of this money will come in while you’re asleep — or out to lunch, or at the gym — and not while you’re slaving over a hot computer in a crappy open office.

But let’s talk about what it takes to get to that point — to the $100,000 launch, for example.

Before you can launch that product, you’ve got:

  • Market research
  • Getting to know your customers
  • Building a website
  • Growing your audience
  • Creating content
  • Packaging that content together into a product
  • Testing that product to make sure it works
  • Writing the sales page
  • Writing the emails that send people to the sales page

By the time you get to launch day, you’ll have poured hundreds, possibly even thousands of hours of your life into building that product — without earning a cent from any of it.

So when you do get to the point where you have tens of thousands of subscribers and you run that launch that earns six figures in a matter of hours — you’re not actually making money out of thin air.

What you’re actually doing is paying yourself back for all the time that you already spent. 

There’s nothing “passive” about that.

Real talk #2: Making money while you sleep doesn’t happen overnight

Another, related thing to realize about building a business that lets you earn money while you sleep is that it doesn’t happen overnight.

I’ve talked to dozens of entrepreneurs about how they started and grew their online business. And the theme that emerges time and time again: starting and growing a business takes time.

  • Sam Gavis Hughson has been working on his business for more than two-and-a-half years, and after a series of personal-best launches last year, he’s confident that THIS year the business will bring in enough money that he can stop dipping into savings and support himself full-time.
  • Laura Long grew her business in 18 months — but the first $77K that her business earned didn’t go to her. It went to paying off her student loans. Now that that’s done, she’s finally able to invest money back into her business and see where she can take it from here.

But here’s the thing: they all knew that going in. They knew that the early stages of starting their business would be slow going. They knew the rewards wouldn’t be obvious right away. But they also knew that having the patience and the grit to slug it out, even when it was hard and boring and the way forward wasn’t clear — that determination was what would get them to the prize in the long term.

Paradoxically, not needing their business to be successful right away is what is keeping them on the path to success long term.

Real talk #3: Passive income is not the only way to build a successful business

Here’s another place aspiring online business owners tend to get tripped up by the idea of passive income.

They become so enamored with the idea of that truly passive product — the online course or e-book that, once built, earns money without them having to lift a finger — they miss out on a whole other range of amazing business ideas that, just maybe, are the businesses they should be building in the first place.

Plenty of successful entrepreneurs have built massively successful online businesses based around service-based business models, like coaching and consulting.

In fact, a few of them have talked about it with us:

  • Sarah Jones explained her decision to walk away from passive income after realizing courses weren’t actually the best way to serve her audience. Her online business, Introverted Alpha, is a six-figure business — but it’s a six-figure business that’s built around services.
  • Benji Hyam told the story of how he and his cofounder’s passive income product actually failed — but then they used that as the foundation for a $30,000/month service business.

I want to put this in bold, because it’s that important: passive-income products are not the only way to build a successful online business. If you’re so myopically focused on the dream of the passive income product that you miss out on the incredible service-based business idea that’s right in front of you, you really are missing the forest for the trees.

Real talk #4: Just because you’re making money while you sleep doesn’t mean you’ll want to quit your business

There’s one final question I’d like to pose.

Let’s say you do reach that promised land of the passive-income business that earns you money literally while you sleep.

Let’s say that business brings in enough money for you to comfortably live on without you having to keep working on it.

What makes you so sure that you’ll want to stop working, even IF you could?

By the time you’ve built your business to a point where it’s earning enough that you could hypothetically walk away, you’ll have invested so much of your time and so much of yourself into building it, you may just find yourself realizing:

Actually, walking away is the last thing you want to do. What you actually want to do is keep building, keep growing, keep seeing how much further you could go.

Making passive income requires some very active choices

Passive income is a great goal to have in mind when you’re starting an online business. But it’s not the only goal — and getting there is not as straightforward as you might think.

People tend to think of starting a business like winning the lottery. It’s just a matter of getting lucky.

But starting a business isn’t winning the lottery. It’s an investment. There’s luck involved, sure — things have to go your way. But way more important than luck is the work that you put in. The discipline to show up, every day, and do what you know has to be done to keep moving forward.  

But instead of thinking of that as a letdown, think about it this way. 30 years from now, which do you think is more likely to have paid off:

Buying a lottery ticket here and there and hoping you make it big?

Or investing steadily and smartly, a little bit a time, knowing that, if you keep at it, the work will eventually yield rewards?

Personally, I’d take the investment any day.  

And if you’re ready to take the leap and start investing in an online business that can pay dividends for your life for years to come, I have something I want to give you:

Our Ultimate Guide to Starting an Online Business.

This is the material that has gotten thousands of entrepreneurs started down the road to starting their own online business and taking control of their time AND money.

Enter your name and email below, and we’ll send you the guide for free.

YES, I’m ready to start my online business

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There Are 3 Comments

 

Ramit, I love GrowthLab because of articles like this one.

I started my online business after reading the 4-Hour Workweek. I thought I could create a product that would sustain itself. And in a way, I did. But it wasn’t what I expected, and I wish I had read this article back then.

I earn passive income from a course that I created seven years ago. And it really does generate passive income. I took a few months off for paternity leave earlier this year and my income was unaffected. Skinny guys kept finding our site thanks to good SEO on our articles, they signed up for our newsletter, went into our automated newsletter funnel, they bought the program, our support guy helped them get settled in, our coaches kept on coaching, our bookkeeper submitted our financials to our accountant, etc.

People see me on vacation and see that my business is still running fine. But that’s only because it already has so much momentum. And if I abandon it for long enough, it will lose that momentum. So I keep on writing new articles, improving the course, creating new products, and working as hard as I can. In the end, I work more than the average person.

It’s not the 4-Hour Workweek I signed up for. But in a way, it’s even better. After all, this is better than any hobby. Takes a lot of work, though.

Hello Katie, as usual quite prescient. The BIG boys (and to a lesser extent the Big girls) make us believe you can “program everything” and leave it to run on autopilot. While certain programs and products can be programmed to run on autopilot for some time, the business as a whole hardly can run on autopilot. So this is a timely, and cautionary advice, that anybody going into online business needs to take to heart. The most successful online business mogul, Jeff Bezos, daily sweats it out at the frontlines as he highlights annually in his letters to Amazon shareholders. Thank you Katie for this good talk.

If things are setup the right way passive income is possible, but it almost always starts with large amounts of capital and/or time invested at the start.

What people should aim for instead of passive income is “active and automated income”.

Cheers,
Leonardo Candoza

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