Yes, it does. Usually, a truly passive income stream generates a small return. When I think of ways to generate passive income, I think of high-yield savings accounts, high-yield cd rates, real estate, and the stock market (if it goes up!).
None of these methods of growing passive income moves the needle in a big way. Even if you have significant capital to invest, 2-4% isn't huge, but it is something.
A different way to create passive income stream
I am a huge believer in small business as a way to build passive income. But, there is a catch. A business may never truly be 100% passive, but a business can run without you.
This is the business model I am using to build "passive income" and shoot for a higher goal than 2 percent.
When I first started my direct-to-consumer ecommerce brand, I was working 20 hours a day 7 days a week. It doesn't get more active than that!
At that time, I was fired from my day job and had my first child on the way. There was no other option than to make it work. You can read my entire story here.
From active to passive income (Can you make the transition)
The hardest part of building a successful business is getting the initial traction. It can take time, effort, and capital to build any business from scratch. For my first online brand, it took multiple years before I could truly live off the cash flow.
Once it started to cash flow, I could hire employees and experts to free up my time. As a founder, it is incredibly hard to let someone else do what you do.
When I had my second child, I had to put my ego aside. I wanted to spend more time with her and be there for my wife.
I hired a marketing expert and an operations person to run the day-to-day when I was gone. I took nearly 6 weeks off. The sales for my online store actually went up! That was the epiphany I needed to remove myself from the business even further.
Passive income versus Business Income (Why I like business)
It was truly freeing and downright terrifying to trust others to run my business. I knew that I had to turn my active income into more of a passive income stream.
If I could get out of the day-to-day weeds, I would be able to spend more time with my family. It worked, but it wasn't easy.
Even though I was able to delegate and make it more of a passive income stream. I still thought about the business and had the stress and pressures that come with being a business owner.
That is why I hesitate to call business income passive income.
The beauty of owning a business is that it could be sold. The best case scenario is to build a business that has cash flow and you can sell. That is the biggest difference between pure passive income.
I can't sell my high-yield savings or CDs for a multiple.
Is this the best business model for passive income that you can sell as a business?
Ecommerce Business Model (Capital Intensive)
The challenge with running an eCommerce business can be negative cash flow cycles. If you are the one manufacturing your own products, it can become extremely capital intensive. Although the scale can be great, it can be difficult to get rocking and rolling.
Agency Business Model (People Intensive)
The challenge with running a service-based agency can be the people needed to scale. If you are the one having to scale and build your team, it can be hard to do so. The cash flow can be really strong but it requires a lot of people to grow to a meaningful number you can sell.
Blogging Business Model (Time Intensive)
As you can see, I believe in blogging. You are on my blog right now. Running a blog doesn't require a lot of capital or people to scale. It requires a lot of time and patience. It is potentially the best business model to get closer to your idea of passive income.
It is absolutely not passive when you start. No business starts off as a passive income stream.
Why a blog is the closest to a passive income stream of the three models? Put in the work and write high-quality content that search engines can rank.
Over time, your blog should begin to rank. The costs to operate are so low, that it could be seen as more passive.