I had a meeting with a friend and his business partner last week. The request was to “pick my brain” on the best way to move forward to generate some passive income streams online.

These two particular people are like a lot of people I know. They’ve got tech skills, they know the Internet well and they have lots of ideas for cool Internet business applications and websites.

Unfortunately they’ve managed to dig themselves into a situation where they spend all their time working on client jobs, running what you might call a “consulting” tech firm, completing various programming and web development projects for other people’s businesses. The money in this business model can be good, but it has some serious downsides too, namely –

  • You have to deal with clients, usually one-on-one, a very low leverage interaction and often just painful as you have to work you way through lots of annoying clients to find the good ones
  • You work very long hours, which my two friends could certainly testament to
  • You know a lot about a lot, yet have difficulty specializing in anything
  • You’re in competition with every other jack-of-all trades web development firm out there, which means you unfortunately end up competing on price, and it’s certainly not nice to have to undercut yourself simply to work with bad clients

Those points aren’t necessarily true across the board, but I’m pretty sure any person who has ever consulted or done any kind of web development work for clients will know what I’m talking about.

My friends are smart enough to realize the path they are on is not going to lead them to where they want to go, so they’re looking to make some changes.

The goal is to develop some form of income stream, or several, that could replace the need to take on client work. As always, the relationship between time, money and freedom of choice is heavily integrated here, as my friends are looking to make more money without drastically increasing their workload and eventually freeing up their time so they can do what they want to, rather than what they have to.

Let’s Not Be Strict About Passive Definitions

I’m about to reveal what I talked about during our meeting with my two friends. In terms of what I suggest you do if you are looking to make some passive income online, I don’t want people to get too caught up on the idea of “pure” passive income.

The methods I’m about to talk about are not pure passive income sources, however they have the potential to be low work, high return income sources that can potentially become very close to pure passive longer term. The fact is, it takes time to develop these income streams, but we all love the phrase passive income so I’ve decided to use it here in the title of my post.

So to clarify, what we are looking to do is start up completely new projects that have the potential to become good sources of near-passive and possibly pure passive income, it just might take some time to get there.

First, Understand Your Unique Opportunities

One of the first things I discussed with my friends was taking their present situation and turning it into something that’s less work for them. Sometimes the “lowest hanging fruit” is just a simple adjustment to the business model you are following now, transforming your core skill from labor intensive, to hands-off delivery, or at least much less work.

Here’s some examples of how you might do this –

  • If you’re currently a consultant or deliver a service of any kind personally, one of the best ways to transition away from the paid-per-hour or paid-per-project client trap, is to either transform or supplement what you do now with information products. Take what you are good at and have done for other people (which make great case studies as proof) and create training resources to do what you do.
  • If creating training products doesn’t quite fit, you might do better developing software, or a system that you can sell based on how your business currently delivers value. Sell the “magic” instead of delivering the magic yourself.
  • Chunking down a very dynamic service into structured packages can help. This serves to focus your offer, which will mean you say no to certain clients you can’t help, but have a very tailored solution for clients who fit right. This is the difference between being a run-of-the-mill web developer who makes websites for virtually anyone, compared to a company that sells three tiers of conversion improvement packages focused on a combination of SEO, PPC and split testing of existing pages. One has focus, with set prices and set deliverables, making it easier to deliver and more profitable, the other way is ambiguous, often blows out of proportion as the client changes their mind, and results in you making a very low hourly rate of pay.If that’s still confusing you, here’s another example: Think of it as the difference between a general website developer versus a developer who only makes blogs for real estate agents. Don’t be an everyman, specialize.
  • Hire people. This is the path of most businesses that have a strong growth curve because they require more resources to keep delivering. A consulting style company can transform into an independent machine that no longer requires the owners participation, or at least the owner’s role is not “in” the business and instead is a more strategic role “on” the business. The problem with this option is that the transition period, which can be very long, often drains even more time from you as you not only continue to deliver to clients, but also attempt to hire and train people. This usually means you get the opposite of what you want, at least until you have a team and systems in place.

How About Completely New Income Streams?

I’ve covered what you can look at without drastically changing the market you are presently in. The other option is diving into something completely different from what you do now. You can choose a different business model, in a different industry and a completely new path, or even start several different little businesses and see what takes off.

This option will likely be more difficult to implement because everything will be new, but sometimes it necessary to start from scratch if you what you are currently doing is not working and you want a clean break. This obviously is the only option if you don’t have a business at all, so if you’re new to making money online, listen up – this will be helpful.

Buy A Web Business

This is perhaps the easiest method to find yourself the owner of a profitable website business, but there are serious downsides – it costs money to buy assets and if things go terrible you could lose everything you invested, though that is very unlikely.

After my blog started to generate dependable income I decided to take that money and reinvest it into buying as close to passive income returning websites as I could find.

I won’t go into too much detail regarding how I did this, as I explained my strategy already in some depth in this article –

How To Invest In Websites In Your Spare Time

At the end of that article are links to other articles from this blog that will teach you more details about buying and selling websites, so it’s worth a bookmark if this interests you.

The great thing about this strategy is if you have enough money you can be the proud owner of a dependable online income stream in a matter of weeks.

Speaking very generally, for every $10,000 you have to invest in websites, you should be able to acquire at least a $1,000 a month revenue stream. If you’re clever about what types of websites you buy, you can easily improve your return in a matter of months.

It’s important when investing in websites that you…

  • Know how the website makes money
  • Understand how the website gets traffic/customers
  • Feel comfortable taking it over (don’t go in blind)
  • Start small so you only run the risk of failing small to begin with

The best scenario is to pick a model that you “get”. If you know software, find an online business or website that deals in software, like for example you might seek out a website that sells a script in a coding language you understand so you can improve and maintain it. If you know blogs and how they make money, invest in blogs. If you like ebooks, find profitable ebook businesses and buy them.

The less ambiguity in your mind the better. If you know the market, the product and can see yourself running the website, that’s a good buy. If you lack experience, then pick small websites so you can become familiar with how things work before investing thousands of dollars.

A good place to start your initial research into website buying and see what is for sale is Flippa.com

Outside of established websites, you can also buy domain names, which are very easy to maintain and can often be passive income sources if you pick up some good ones.

A person who deals in domains is called a “domainer” and generally, besides profiting from buying and selling of domains, income is generated from type-in traffic. Type-in traffic is people opening up a browser and directly typing in a domain name. The domain name itself might not have much of a website in place, but if you have enough type-in traffic simply displaying a few ads on a basic page could be enough to generate some nice passive income.

Building up a portfolio of domains is a strategy you can pursue, just remember due to the ease of which you can get into buying domains, competition is fierce, so like with real estate, do your research before investing.

A good place to start domain trading research is DNForum, however look around as there are many other communities discussing this money making method.

If you have some serious capital to invest buying fully established online businesses is an option. With $50K to $100K to spend there’s no reason why you can’t buy yourself into a nice full time income stream in one hit, or diversify and purchase several websites that in total result in a full time income stream. The challenge is maintenance, as running a large e-commerce site or many smaller sites can be a lot of work.

I sold my proofreading business to a couple, who, assuming they didn’t break everything, were essentially buying a solid income stream in exchange for a lump some of capital. The business was reasonably automated when I was in control, although the new owner had to familiarize with how the ship worked, it pretty much sailed itself.

Follow A Proven System

If you don’t have capital to invest, or you prefer to learn a system from scratch yourself, and you’re prepared to spend time studying and implementing, following someone else’s proven system is a good option.

There are literally thousands of ebooks, courses, membership sites, other information products and mentoring programs you can purchase that all propose to teach you a system for making money online. Here are some example business models to choose from…

  • You might learn how to set up mini sites to tap into small but lucrative niches using the power of long tail search engine optimization and then make money with advertising and/or affiliate and CPA offers
  • You can master Pay Per Click and then arbitrage your traffic budget to sell affiliate products or CPA offers to the point where every dollar you spend buying traffic returns more than a dollar in revenue, or sell your own products
  • You can enter the multi-million dollar marketplace that is eBay and carve out your own niche there
  • You could give e-commerce a shot and set up your own online store
  • Perhaps e-books is the best model for you
  • Or of course, you can enter the blogosphere and attempt to become a professional blogger

All these systems are taught by various people who, in most cases, have already figured out how to make money using a certain technology or method or system, and now offer to teach that same system to others.

Unfortunately, most people who take training programs that teach how to make money, don’t. I’ve gone into detail regarding why this is in many posts, but for the sake of simplicity it’s safe to say the biggest problem is not the system, but the person who’s trying to use it.

It might look like lack of tech skills, or tough competition, or poor execution, or any number of on-the-surface reasons why people fail, but in the end most challenges can be overcome, most people just don’t try hard enough.

If you look deeper, the reason why most people don’t try hard enough could be all kinds of things, but usually it’s simply a mindset issue. Motivation, a willingness to learn new things, take action and never give up stem from how you think, so if you can get on top of that you’ve won the biggest battle. The rest of the equation is simply a process of testing and tweaking until you find out what really “floats your boat” creatively and gives you rewards intrinsically.

But I digress, this is not meant to be a motivational piece on mindset (or maybe it is…). If you want help in that area, read this – How To Remain Productive When You Feel Like Giving Up, and this How To Become Comfortable With Yourself.

The fact is, there are systems out there that have proven to work and there are people who explain how these systems work. The information is available, all you need to do is commit to a plan of action to execute the system.

It can take some work to spot the frauds, especially because they often have the best marketing, but since you’re reading my blog you’ve already been guided to a handful of resources that are run by people who walk their talk and are actually teaching what works. There are no guarantees, and ultimately you won’t know until you try, but I do guarantee that taking action will always benefit you in some way, even if you never make a cent. Each system that doesn’t work for you takes you closer to one that does.

My advice is to do three things first if you’re looking to start a new online business with the goal of developing a stable online income stream –

  1. Do some research into the programs available that propose to teach you how to make money online
  2. Pick the program that best matches you in terms of what you want to learn how to do, how it is taught, who is teaching it and of course, listen to your intuition too (make decisions based on the people involved, the teacher for sure, but also past students – you should be able to find lots of commentary online if the program is any good)
  3. Commit yourself to learning and executing what is taught over a period of at least three months, preferably more time – even up to a year

And as a fourth step, presuming the first three steps work, you can then outsource the implementation of the system to others, who either maintain and grow what you have done already, or replicate it in other niches.

I do recommend you go through a new system once yourself before outsourcing it entirely as it helps to really know how something works before you have others do it for you. Outsourcing is a great way to make a business much less labor intensive and create truly passive or very near passive income streams, but for most people this is a process of learning, then doing it yourself, then handing it over to others.

There’s a key point of distinction that needs to be made here when comparing say starting a consulting client-based type business and then hiring people to take it over, verses buying a training program and then having other people take it over. The training program you choose to implement will be a much better business model when it comes to making it hands off for you.

All the systems I listed above have the potential to become very hands-off, whether it’s because they take very little time to manage (like spending a couple of hours a day writing a blog post), or can be given to others to do (for example having assistants do market research and set up websites and write articles in niches for you).

Consulting and service based businesses often depend on a specialized skill that can’t be outsourced, are very time consuming to do or have very little potential for leverage. If you choose the right online business model then you will have a much greater potential to make a lot more money and work a lot less.

While the promise of quick riches is usually a ploy for scammers to get you to part with your money, there are some great training resources online, many of which cost under $50, that will teach you some fundamental skills that can, in time, make you a very significant amount of money, which can even become passive income if you follow through long enough.

Here’s a few resources you might want to begin your research with –

And when you’re ready to begin outsourcing and systematizing your business…

Some Additional Options If You’re Really Creative

If you’re not in a position to purchase a website asset and you don’t like the idea of following someone else’s system, then you can always go it alone and attempt to create a business from scratch by yourself.

There are many stories of successful online entrepreneurs who figured it out without buying any training programs or doing any formal study. In most cases the reason why these people succeed is passion. They’re prepared to keep throwing things out there again and again until something sticks. Along the way they learn a lot and assuming they eventually come across a winner with the right business model, can become financially independent.

There are a lot of traps along the way with this path – and trust me on this one as I’ve walked this path for most of my business life too. Only in the more recent years was I wise enough to invest some money into training programs. The consequences of this is a much longer learning curve, often plenty of wasted time and some failed projects. The plus side is, when you do find what works, you can become a true expert as you’ve done your time and lived the experience, rather than just studied what someone else did.

That’s the core reason why my blog is successful and in some cases, this might be the best path for you. If you want to read my own story regarding why my blog is successful and what ingredients you need if you want success building something yourself, read this – Sometimes You Have To Reinvent The Wheel.

To end with, here are some ideas you can go after if you decide you want to build something yourself –

  • Like the case with my friends who I had the meeting with, they posses strong programming skills and definitely some entrepreneurial motivation, which leads to constantly coming up with ideas for scripts and community sites. The challenge is picking the right ideas to chase, especially if you’ve never started a software based company before. If it works, it can be very lucrative as an online business start-up (the truly big ideas like Facebook, eBay and Twitter all start as ideas for clever software services in the mind of some entrepreneur).
  • You can attempt to leverage existing or emerging trends. For example, in recent months the market for iPhone applications has been huge. All it takes is one good idea and the drive to turn it into reality and you can be in quickly as a new emerging technology or trend takes hold.
  • You could have a great idea for a service or script or community site, and you even have the know-how to put it together, but you lack audience. This is the number one start-up killer, as many people are full of clever ideas but have no marketing acumen whatsoever. Ideas are great, but if you don’t have distribution, you won’t make money, so you need a way to get in front of people. One way to do so, is partner with people who have an audience. For example, if you have a great idea for a software application for stock investors you can look for people who currently market to them, and then partner with them. They bring distribution (access to people), you bring the idea.

Failure As A Path To Success

I’ve never liked the word “failure” as I perceive a strong negative association with that word, like it’s a bad thing. I’ve always looked at any experience, whether you achieved your ultimate goal or not, as a good thing. You have to believe this or you will give up long before you reach your destination.

If you don’t consider every “wrong” step a process to go through until you find the right path, then you will not enjoy that wonderful moment when you realize you reached the goal you were striving for. Although, when you get there, it probably won’t feel even close to how you expected it to feel because of what you went through on the way. That’s okay of course, it’s meant to be like that. That’s how we grow and if you expect your awareness to remain static then you’re in for a shock.

You may realize what you wanted back then from your business, or from your life in general, is quite different once you’ve spent some time chasing the dreams. Dreams evolve too, because as a consequence of finally living something you previously desired, it changes – you change. What you want is never the same when you have it. That’s why it always seems rosier on the other side of the fence right up until the point you jump over.

Understand this as it relates to your goals for passive income. If I was to stop and talk to the person I was before I built my business to what it is today I’d say to my previous self that what’s important is to be motivated by the journey more than anything else. Yes, the dream of passive income, lifestyle freedom and never doing a job you hate is important – it will keep you motivated – but it’s not really the endgame you think it is now. Every path walked leads to another selection of doors to open.

Remember to spend some time today and tomorrow and the day after that moving towards what you want and eventually you will have it, it just might not look and taste how you expect it to. In the case of building your own online passive income streams, take the motivation you had to finish reading this article from top to bottom and continue moving forwards. Pick a strategy, a next cause of action and follow through on it.

You might decide to transform what you do now into something more passive by changing the model or hiring people. You might start researching the possibility of investing your capital into online properties and buy into new income streams, or perhaps you will begin the process of finding someone else’s system to follow to build new revenue sources. Maybe creating something completely fresh from scratch is more desirable for you, or it could be that you’re ready to look into outsourcing and building systems as the path to more money for less work.

Whatever the case, I wish you good luck. I love it when people taste the freedom that being able to choose how they spend their time on this planet brings.

Choosing Destinations