Do you – or can you – generate passive income?
Mark Maunder poses a very simple question.
Does your start-up/business/idea make money when you’re not directly working on it?
If you’re an I.T. consultant or lawyer selling your own time, you can’t scale.
If you’re a brick-layer who employs other brick layers and also employs a sales person, driver, accountant and all the other business components so that your business runs while you’re not there, you CAN scale.
If you’re a web developer who writes an application that earns ad revenue or that earns subscription money while you sleep, you CAN scale.
Most businesses start off with a founder selling their time and with the maximum earnable revenue being tightly limited by the founders available time. The founder works themselves into a stupor and at some point they go through what is often a difficult transition where they “step back” from the business and employ others to take over their various jobs. Many businesses don’t make this transition and it is the subject of much discussion in MBA programs world-wide. The birth of Kinko’s is a great example of this evolution.
In a former life, some of us were involved with an email security startup, GatwayDefender (acquired in 2006 by MX Logic; since acquired by McAfee). Before email filtering was main stream we were hard at work building what would become a global competitor in the email security sector. One of the first, in fact. Automation, simplicity and redundancy were key to making this happen. Hundreds of thousands of users were supported by a technology staff of only three.
It’s critical to get to a point where you’re making money and supporting your clients 24 hours a day without direct contact or interaction with them. Especially when money is tight and resources are limited. That’s not to say that you don’t interact with you customers just that you don’t need to in order to make money. Our revenue model was a monthly subscription: per user, per month.
It’s a great question, and a real eye opener for many would-be business owners. Hell… anyone who lends money to small businesses should add this line of questioning to their loan application.
Now… the real question is:
Does your business scale?
Do you mind sharing your insights or even mis-steps about your experience?
Read the full article here:
http://markmaunder.com/2010/does-your-startup-pass-the-sleep-test
I was involved with a startup and quit after I realized that the money we were making was directly proportional to the number of hours invested – there were times when the ratio took a dip.
I can understand the point you are trying to make with this post :D
definitely a tweet ;)