How do you compare revenue opportunities, on a scale of passive versus active?

Now that we have a good understanding of what passive income is, here's a simple memory aid that I've developed to help you compare specific passive income opportunities. I've found it useful, hopefully you will also.

• P assive vs Active.
• A rchitect vs Landlord.
• S ell (re-sell) vs Serve.
• S mart work vs Hard work.
• I nvoluntary (like breathing) vs. Voluntary (like eating)
• V ehicle to a goal vs Being the goal itself.
• E ighty-Twenty rule – Find your best 20%, and focus on it.

1. Passive vs Active:

Here's what I mean: Let's say your passion is making widgets. You've always enjoyed designing them, producing them... widgets are just awesome. You're the best widget maker at your company. But you can't stand the politics at the office. SO... you decide to strike out on your own! You start your own widget making company, called Wally's Widget World! The first week is great - you can make your widgets in peace, with no drama.

But then, you realize that there is no one to do the accounting. So, you take on that responsibility.

And then, you realize that there is no one to do the sales. So, you take on that responsibility.

And then, you realize that there is no one to take and fulfill orders. So, you take on that responsibility.

Pretty soon, Wally's Widget World is becoming a nightmare of a job. You have much more responsibility than you did at your former job. And you don't even enjoy most of the tasks! You eventually get burned out after not making enough money, and working too many hours.

Robert Kiyosaki talks about this syndrome in his book "Cash Flow Quadrant". It is an excellent read - I highly recommend it.

You can also read Michael Gerber's great insight on this issue, in the book titled: "The e-Myth".

When you own a job, you are always active, doing that job. If you don't work, the job doesn't get done.

BUT when you own a business, you own a self-sustaining system. A system that needs care-and-feeding, to be sure, but on a much lesser scale than does an individual job.

Ideally, you want your revenue opportunity to be as passive as possible... so that it can free you to spend time on the things you really want to do in life.

2. Architect versus Landlord:

The Architect is the one who designs the building. He gets paid up front. And his work is duplicable. So actually, he is paid for the work done once... every time that design is applied! How cool is that!

Contrast to the landlord. The landlord fixes toilets. He chases tenants for rent every month. He wakes up in the middle of the night to tell the boisterous tenants in 8A to pipe down.

This is not to disparage the landlord profession at all. Rather, it is to say that if you have a choice, choose revenue opportunities where you can do the hard work up front, and then forever-more receive residual payments on it... versus having to show up to work every day in order to get paid.

3. Sell (re-sell) versus Serve:

Now, if you were doing the order fulfillment and customer service, you would conceivably get a bigger slice of the revenue pie related to that product. But passive is our goal - passive income frees you up to pursue multiple streams... instead of being tied down to one.

4. Smart Work versus Hard Work:

While these may sound cliche, they're not. More often than not, we work hard BEFORE we work smart. (Or maybe, we never end up working smart at all.) You see, working hard... is actually EASIER than working smart.

I'll repeat that, so you know I didn't mis-speak.

Working hard is actually easier than working smart!

Here's why I make that claim:

• "Working hard" at the office:
  Look at most jobs. MUCH more emphasis is placed on being in the office, working your full hours, than is placed on accomplishing the goals you were given at the beginning of the period.
  If, there were any goals given to you.
  Case in point- there are people who have mastered the art of "working late", "always being busy", "having a hand in every project", etc. etc. But if management would pay closer attention to the goals, they may find that this individual isn't hitting the results.
  
  Read Tim Ferriss' "The 4-Hour Work Week", to gain more insight into this phenomenon.
  
  

• "Working hard" to follow the status quo:
  Following the status quo, and working hard while doing it, attracts the least criticism. Most times it will attract praise. Never mind the fact that it may not achieve the desired results... if it is the agreed-upon way of doing things, then onward! Do it with gusto! Again, results are unfortunately de-emphasized. Conformity is encouraged.
  
  

• "Working hard" to give yourself an alibi if things fail:
  "Oh well. At least I tried. I worked really hard at it."
  The problem is, that shouldn't be good enough. First, you've got to get clear on what the desired end result is. Once that's done, why not find the most effective way to do that - whether it takes 40 hours, or just 4?

Let's bring this home, fellow rat race rejects. If your goal is financial freedom, if your goal is multiple healthy passive income streams, then why not find ways to build those income streams with minimal ongoing effort, so that you can keep discovering and building new passive income streams?

Involuntary (like breathing) vs. Voluntary (like eating):

So, you should pursue passive income streams that just happen. A good example of this can be found with network marketing companies that feature consumable goods. That is, stuff that people buy, use up, and buy some more.

Examples would be insurance. Or groceries. You don't have to run after people every month, telling them to buy food and toiletries for their house. Or to pay their monthly insurance bill. They will automatically do so every month. Or more frequently. (Like breathing).

On the other hand, if our product is a car, or an XBox, people will typically buy that only once every few years. This means that you'll have to continue to find brand new people to sell automobiles, or XBoxes, to. Because the people you just sold to now have one... and won't need another one for a few years.

Vehicle to a goal vs Being the goal itself:

Your passive income streams should be the vehicles to your ultimate goal. NOT the ultimate goal themselves.

Here's an example of where not getting this right can lead to the demise of your dreams:

• Richard is a marketing whiz. He enjoys the work he does for Acme, Incorporated. But he is frustrated by the long hours, the office politics, and a lack of promotions. He doesn't like the fact that he isn't allowed to work remotely, and that he only gets one week of vacation a year. He wants to spend more time with family, and also spend time teaching English in foreign countries.
  

• Richard decides to build a passive income stream by building a web site. He leverages things like affiliate products and google AdSense to make money.
  

• After some months, his efforts take off! He is doing marketing consulting for many local companies. He's participating in industry forums and conferences. He is working long hours - longer hours than he did when he worked for Acme.
  

• At the end of the day, Richard has created another job for himself. It's good that he enjoys working on his income stream. But he has to keep his ultimate goals in mind. Just a few tweaks could help him gain the perfect balance.
  
• Richard cuts back on the number of consulting jobs he takes on. And outsources some of the services he is providing to 3rd parties. He makes less money, but he gains more time... which allows him to spend time with his family, and volunteer in foreign countries. Life is good for Richard now.

Eighty-Twenty rule – Find your best 20%, and focus on it.

• 20% of your efforts will produce 80% (or more) of your desired results.
• The remaining 80% effort will only give you 20% of your desired results.

The catch is, it's rarely immediately apparent what 20% will give you such huge returns. Some work (often experimentation) needs to be done, to determine where the most productive work is.

Once it is found though, it is in your interest as a passive income stream developer, to do that 20%, and move on. Sure, you won't have 100% of your results... but check out this example:

Ronny is a perfectionist. He puts in 100% effort, and gets 100% results.

Mike is an 80/20-er.

• Mike puts in the right 20% effort on income stream 1, and gets 80% return. (20% of available time spent)
• Mike puts in the right 20% effort on income stream 2, and gets 80% return. (40% of available time spent)
• Mike puts in the right 20% effort on income stream 3, and gets 80% return. (60% of available time spent)
• Mike puts in the right 20% effort on income stream 4, and gets 80% return. (80% of available time spent)
• Mike puts in the right 20% effort on income stream 5, and gets 80% return. (100% of available time spent)
• Mike ends up with 80% results on 5 different income streams!

• Ronny puts in 100% effort on income stream 1, and gets 100% return (100% of available time spent)
• Ronny ends up with 100% results on 1 income stream only.