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Brainstorming Cultivating a Passive Income

Discussion in 'Money' started by Shaney96, Apr 19, 2018.

  1. Shaney96

    Shaney96 Active Member

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    June-September will be free time (I've cut my placement short), and I intend to use this time productively. This brainstorming will focus on passive income, as having such in place will provide some financial freedom post-Uni (as long as the income suffices), enabling me to do pursue some longer-run goals and not have to jump straight into a 9-5. I know a 9-5 isn't the only option, but I intend to do some travelling, meaning any job I get will be short-term and - most likely - low pay.

    By the time Uni starts, I would like to have something coming in, whether that be £5 per week or £50. I have very little knowledge regarding passive income, and am already pretty intimidated by it due to the vast amount of methods of cultivating an income in this manner.

    I've done a little research, and have found a few methods:

    - Affiliate marketing.
    This would be difficult to start as I currently have no website, nor a great following anywhere, meaning little traffic to begin with. The big task here would be to create a website (for whatever reason). On the other hand, I have a very small following on my Instagram , and one longer-run goal is to really grow this. If I managed to attain a pretty massive following, I could implement affiliate marketing here. On the other hand, I could create a separate IG for something that isn't my hobby, and is purely focused on making money.

    - Amazon FBA.
    I believe this may be most viable. I've heard a bit about this, and done an hour or two of research into it, and it definitely appears to be very passive and have a lot of potential for growth.

    - Buying/selling.
    I already do this to some extent, and it is by no means passive. There may be ways to incorporate drop-shipping on eBay, but buying clothes (or whatever you want to sell), creating listings, then packing and posting it, takes a lot of time and effort, and is not very reliable.

    - Dropshipping.
    Again, this would require a (pretty basic) website to function, however I believe this to be pretty viable. I could probably use website templates/Wordpress to get a basic site up-and-running, and then do some research into various items that could be dropshipped. Again, I need people to use the site and purchase things, but there'll of course be ways to generate traffic.

    - Write and sell eBooks on Amazon.
    I've never written a book, but this could be an interesting method. I believe I could enjoy this as it would allow me to be creative. I currently have no ideas about any books I could write, but I journal so that could suggest a few book ideas in itself and suggests there's a good chance I'd enjoy writing something.

    - Create a mobile application.
    My programming skills are primarily back-end, meaning I have little/no knowledge regarding the creation of websites and mobile applications. Just because I lack such knowledge does not mean I should dismiss this, as again, this would allow me to be creative and could shape my career.

    Have any of you gone about getting a passive income going? What method did you choose (if you're willing to share), and what attracted you to that method? Perhaps you have your own business - what were the first steps you took in getting it up and running? What the the traps I should look out for going forth? Are some methods so difficult/risky that they should be dismissed?

    Rather than prancing about between methods, I want to find one I'm confident in and then stick to it. I'm still working from now until June 1st, so a goal could be to have 'some foundation' in place for that date, which could be achieved by (for example) putting in 5 hours of research per week. What 'some foundation' is, I don't know, but will be established.

    Any guidance/advice would be appreciated.
     
  2. Shaney96

    Shaney96 Active Member

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    Another option is investing. I am unsure where I'd start with this, and there's possibly more risk here than all other places combined. I appreciate you need cash to begin with. I do have some cash, but it may be unwise to invest it if it's possible that my investments could prove fruitless. I can afford to make smaller investments however, to ensure I still have insurance for if life throws me a curveball.
     
  3. James

    James Host

    Well first things first, it's important to remember that: (1) everyone wants passive income, and (2) most people know about those standard concepts of online passive income. Yet very few people ever succeed in getting it, for the reasons explained below.

    The issue once you enter the world of business (that's what passive income is -- income decoupled from time), is that you're no longer on the linear income curve of employment. Instead, you're on the hockey stick. Amazon is inundated with ebooks that will make nothing, and also has a few (like "the 4 hour work week") that make millions. Similar case with affiliate links: a small number of websites get enough traffic to make affiliate links worthwhile, and most get negligible traffic. Similar story with apps. Contrast that with employment: every employee gets a livable income.

    Following the crowd on business advice is always the worst way to discover avenues for passive income, because logically you're following a crowd of new supply, and you're not following indicators of demand.

    Which is why it has to start with first principles:
    1. Supply-demand gap
    2. Capacity to fill

    The ways of finding supply-demand gaps are many. But this is the best place to start research. What do people want but have difficulty getting? Much harder to research and find, but is 100 times more powerful than researching "how do I make money supplying [thing everyone else is trying to supply]".

    'Capacity to fill' is factoring yourself, and what you're good at, into the opportunities your research uncovers. The better you are at something, and the less painful it is for you to do, the better chance of you successfully executing on the opportunity.

    Finally, what most people are thinking of when they think "passive income" is "easy money". This is false. Due to the hockey stick, it's actually very hard money. True "long hard hours of focused work", as the motto here goes. Most people can stomach going to work because it's a guaranteed payoff. Most people can't stomach slogging away at a non-guaranteed payoff, which is why most people are wagemen or salarymen, not businessmen.

    Something to think about. If you want some online money to support you while traveling, it's better to cultivate a specific in-demand market skill, and then freelance it online. This takes a bit of research and perhaps setting up a name/website for yourself / testimonials etc. But it's more reliable and faster to cultivate than business income (unless you have enough capital to simply buy an existing business).
     
  4. Shaney96

    Shaney96 Active Member

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    There's also that people aren't in a situation to get a passive income. For example, they may have a career/job they're already enjoying enough not to bother, they may have very demanding responsibilities, they may just find the whole concept overwhelming and the learning curve too steep so don't bother making an attempt. It's not that these popular methods don't work, but as you mentioned, it's much better to find a niche and exploit that rather than adding to the 'everyone else is doing this, how do I do it and add my own spin?'

    I say the above because I don't want to disregard these popular methods. I'm currently not looking for something that has the potential to makes me very wealthy, but instead that brings enough in to sustain me. I appreciate that work aplenty needs to be put in before you start seeing any results and, even after money begins trickling in, the least that has to be done is maintenance work in order to keep the income alive.

    I could spend some time doing a load of market research here, since I understand that all blooming businesses start with that initial idea, that fills a gap in the market/meets the needs of the customer/makes something more convenient.

    This points me back to my fashion/CompSci crossover. I think it's worth me researching into what problems exists online/what skill is in demand that incorporates both these elements. I currently have an idea for a fashion-related app, but again, who's to say it sell, Furthermore, the learning curve would be fantastical due to the scope of what I'd want to achieve before releasing it.

    The last thing I want is to be put off; to not even make a start. Or, even worse, to spend hours looking for the 'best' option and never actually fully committing. Or committing partially to one idea to only think 'hmm, this other option would probably prove better. Let's try this.'

    I would like to turn this into a tangible, doable goal, and would also like to find something that evokes at least a little enthusiasm. I can start researching into building an app, and/or perhaps into how to begin investing. Maybe even look into book ideas? Again, I don't want to overwhelm myself so do want some direction.
     
  5. James

    James Host

    Interestingly, most of the guys I've met with a roaring business, transitioned into it from a job. The reason being that their jobs were putting them in positions where they were on the 'front line', where they could see the market gaps. Of course, they were some of the very few who then had the balls (and savings) to quit their jobs and take a swing at it.

    My point with the "everyone is doing this" is that it must lead with independent demand research, as all those typical avenues echoed ad infinitum on the internet are means of supply. I've noticed a disproportionate people decide "I'll start a made-for-ads site" or "I'll start an app". It's the wrong way around. The monetization mechanism should follow and be indicated by the nature of the demand -- it's not selected prior to vigorous demand research.

    The problem with this, from a passive income perspective, is the hockey stick. Profits start at zero, and take enormous effort to move above that -- but after a certain point it becomes fairly easy to double them. But wages have a minimum (but creep up slowly). Which is why for sustenance purposes something like freelancing is better, as it's linear. Low initial capital business runs in the payoff realm of years (with big chance component), not weeks.

    It is worth research, but look for freelance (contracting) type work in it first. That moves you along the salaryman <-> businessman scale. From there often you'll start getting ideas. When people contract with you in X (with X being that in-demand thing you discover in that space), it means there's demand in X, which in turn can start to indicate business ideas. Not only that, you'd be half way to being a business man, as you're operating independently, and gaining about half of the experience a businessman needs to have.

    Correct. But the start must be research, and then probably independent contracting (which is very easy nowadays -- you just go on a freelancing website). The number one reason businesses fail, meaning they don't go on to make passive income or they make a net loss, is failure to strike demand.

    A simple way to start market research is go gather a list of freelancing websites, and start searching on them with a set of search terms you design that target the fashion/CompSci crossover, and start taking note of patterns, and then take it from there.
     
  6. Shaney96

    Shaney96 Active Member

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    Thanks for your advice @James, it's greatly appreciated.

    I think that if I did jump head-first into building an app, that there'd be a sense of unease/uncertainty as I'd never be able to gauge whether the app would ever sell. The unease would probably only kick in if I ever found the coding mundane, as I think excitement and having a creative outlet would motivate me to finish the app.

    You use this term regularly, could you please expand on what the hockey stick effect is? I've seen it used before by you, but I'm yet to fully grasp your concept.

    This will be the first thing I look into, as I'm currently clueless about what service I could provide that people would pay me for. It'd be interesting to find a freelance job that combines CompSci and fashion.

    How about a goal of:
    Get paid (meaning actually do 1 piece of freelancing work) for something combining CompSci/fashion. The action would be to accumulate 5 hours worth of research per week?
     
  7. Kostadin

    Kostadin Active Member

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    While I can't be of help in a practical way, I can give you two examples that you may find interesting.

    My mother's boyfriend buys and sells stuff at Ebay, not as a main source of income, but as a way to get extra money. He's interested in hiking and skiing, and uses his knowledge to buy and sell such clothes, shoes and accessories. He also used to work in the telecommunications industry, and used his position to learn about smartphones and make contacts with some phone technicians. He buys just about everything that he can make money from - phones in perfect condition, with minor or sometimes even major issues that he fixes himself or gets help from other people, all kinds of parts.
    Is it worth it? Yes. But it takes a lot of time. Having to stay late to catch auctions, checking if there's something new on the marketplace every day, being called by sometimes not the most pleasant of customers isn't for everyone. When he moved in, it felt like 33% of his luggage was things for selling. And some of those were with him for more than a year. It's no wonder my mother persuaded him to stop buying stuff and slowly get rid of everything.

    A schoolmate of a relative of mine lived in the USA for years. One day, while reading a newspaper a thought struck in his head - "Is there something like food supplements for pets?". It turned out the market didn't offer nothing really like what he had in mind. After a lot of research, he found factories that were willing to dig deeper, experiment, and produce such products for him, that he now sells on Amazon. He needn't take part directly in any of the processes of manufacture or distribution. He can work from anywhere as long as he has Internet connection, and it's not like there's that much to do really. This dude hit the jackpot - invented something completely new, that there is demand for, there will be for a the next few years down the line for sure, and he has more than enough time to work on other projects. If you can do the same, you're golden, but if you can't create something completely new, think how can make your product better (or cheaper) than your competitors'.

    If you have any questions about their experiences or some details, tell me. They would be delighted to be asked.
     
    James likes this.
  8. Shaney96

    Shaney96 Active Member

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    Heh, unfortunately, I know this all too well, and have formed an something of an addiction around it in the past. One of my last goals on here was to get rid of all my stock as it was greatly adding to my anxiety. I've re-cultivated a lot of stock, but fortunately this doesn't make me nearly as anxious as it used to.

    That's just reminded me: I gotta sell as much as possible before I move out as I'll have half a car-load just for selling otherwise... Cheers for the reminder!

    Similar to what James said: find something that doesn't exist, and put the effort in creating it. Cheers, as I think I'll get researching into a target market(s)

    I appreciate you offering this, and will keep it in mind. Could come in handy for the future.
    .
     
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  9. James

    James Host

    [​IMG]

    The hockey stick (or power law), also described by other names like "Pareto principle" or "80/20" or "90/10" rule, is a fundamental life rule.

    It shows up everywhere, from global net worth (hundreds of billionaires, billions of hundredairs), to product profits (few high profit products -- usually near the checkout, multitude of small profit products that are somewhat just there to bring in customers), to musicians (Harry Styles & Co get most of the fame & fortune, all other musicians get negligible amounts), to insurances payouts (the few big claims form most of the costs), to who gets success from online dating, and so on.

    Other things follow a simple straight line. Most salarymen, for instance, get a starting salary, which then bumps up a bit each year. Or if you earn a wage, increasing your income is a simple matter of work more hours, such as overtime or another shift elsewhere, and you then get that much more money.

    The reason this concept is useful, is because it informs expectations and strategy. The wage worker or student immediately runs into difficulty when applying the rule they currently live under -- the high certainty straight line -- with the true law most of the world works under: the hockey stick. They have the mindset "I pass exams in X subjects and I get 1 degree certificate", or "I work twice as long, and I get twice as much income". Or they might think "instead of working as an employee, I'll work as a [online passive income method] instead, which I think will have similar payoff profile". Applying this mindset to the world of business, or anywhere else where the hockey stick applies, is a massive mismatch, which results in rapid disappointment, demotivation, and giving up.

    Instead, when you know about the hockey stick, your expectations and strategies are in line with reality, and this reduces the chance of demotivation and failing to execute to completion.

    When starting a business (to get passive income), it means being diligent in "getting your ducks in a row". Each piece of diligence or tactic moves you left on the above curve. It's the combination of multiple forces multiplying together (e.g. hard focused work × tight market research × cash reserve × good psychology × strong applicable skills × weak/mediocre competition × good partner/team), that allows you to get out of the shaft of the curve ($1s/month region), into the shoulder of the curve ($1000s/month region), and then into the blade of the curve ($100ks/month region).

    Yeah it sounds good. The research would include "active" research too (e.g. you apply to 20 freelancing gigs with different work offer wordings, and take note of the types of offers that get responded to). Another place you can check out is fiverr -- it has the added benefit of showing the work loads on other freelancers, which gives you a clear signal of demand outstripping supply (or vice versa).
     
  10. Shaney96

    Shaney96 Active Member

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    Perfect explanation - I understand this now. As soon as you said '80/20' (I believe you mentioned this synonym in an earlier post), it made sense. I see the graph making more sense flipped, so it mimics the exponential curve.

    Brilliant. I think theses are the most important parts of your response. I can easily imagine myself banging my head against the wall after putting in X hours and not seeing any results. Having the mindset that takes into account the hockey stick will help avoid frustration by knowing that "this makes sense" whenever you aren't seeing tangible results directly proportional to the hours put in.

    So it could be a case of doing a few things and getting no/little return (excluding experience), until finally, after perhaps years, I come across an idea that blows all other results out of the water, and thus the attention is focused there.

    I'll write up the goal tonight.
     
    James likes this.
  11. James

    James Host

    Kind of, yes. Base target should be business payoff in 12months. But independent contracting (freelancing) pays off as soon as someone clicks "accept bid" (or even more independently, pays your initial deposit after a cold call), and simultaneously starts to shed data on supply-demand gaps.

    Contrast that with being an employee. Most employees are "mushrooms": kept in the dark and fed...
    [often for good reason, mind you, as I know one guy who left his company and started a direct competitor, multiplying his income 10 times in the process]
     
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