There are plenty of people who dream of escaping the traditional 9-5 daily grind, and then there are those that actually do it. They take a chance and start building a life where they are setting up passive income.
As defined by Investopedia, passive income is “earnings from a rental property, limited partnership, or other business in which a person is not actively involved.” Simply put, passive income is money you earn that doesn’t require you to do a lot of “active” work to keep making it.
For 27-year-old Kenny Schumacher, it became evident early on in his life that he would travel the entrepreneur’s path and one day become his own boss.
At age 10, as an avid player of the massively multiplayer online role-playing game (MMORPG) Maple Story, Schumacher would find ways to earn money. In the game, players could spend money to customize their characters with clothing and weapons. With his creativity and entrepreneurial skills, he discovered opportunities to sell items from his own shop on the free market within the game.
Later on, as an accounting and finance double major in college, Schumacher was drawn to the startup life. He interned for an accounting firm in the Bay Area that focused on entrepreneurs and startups. However, he was unsure about his future in accounting, as it didn’t merge with his true passion – entrepreneurship.
But the internship did, nevertheless, reinforce his belief that he would be able to “make it” in the entrepreneurial world. As he observed the startups his firm worked with, he realized he wanted to do his own thing and eventually live entirely off passive income.
“I thought that if these people can do it, that reinforced the belief that I can do it too,” Schumacher says.
Delesign: A SaaS Business Success Story
How do you grow and scale a SaaS business from a team of four to over 60 employees and then exit? For Schumacher, finding joy and passion in delegating has been his formula for success.
After recently exiting his second company, Delesign, a digital high-growth B2B recurring subscription business in the graphic design services niche, Schumacher learned some valuable lessons along the way. He managed a team of over 60 creatives and, in the process, understood what it takes to scale and eventually step back, creating a business that would run smoothly without his day-to-day involvement, paving the way for his exit.
Here Schumacher shares his top tips for creating a business that can become a source of passive income.
The Keys to Passive Income:
If you want your business to transition into a passive income stream, delegating is a necessity.
Many entrepreneurs might fear that the job won’t get done exactly the way they want by delegating. However, Schumacher attributes much of his success as an entrepreneur to his ability to delegate. His advice: Delegate with the understanding that things won’t be perfect.
“Even if the person you hire is only 60% as effective at the task as you are, it doesn’t matter. What matters is that you now have more time to focus on other areas of the business. On top of that, the employee will be spending all their time on this area, which will allow them to improve further and soon become 110% as effective at the task as you were,” Schumacher says.
On the importance of delegating, he’s unequivocal: “If you don’t delegate your tasks, you’ll never grow as a business. If you’re too busy with the day-to-day operations, you’ll never be able to spend time on growth.”
Create Repeatable Processes
“I always had an interest in creating repeatable processes and using those processes to scale a business as I hire more people.”
As Schumacher delegated an increasing amount of his tasks from customer support and social media to managing designers and hiring, he challenged his own beliefs. “Every step along the way, I was convinced it would be impossible to delegate any more of my responsibilities, but each time I was proved wrong.”
He was able to delegate and streamline operations to where his involvement in the business went from being all-consuming, to a few hours a month. That isn’t to say you should never do the basic tasks of your business. There is a time and place where doing everything yourself is a good thing. “When starting a new business, I try to do most of the tasks myself to understand them well. But once I know them, I’ll make processes and procedures and then hire and train others to take some of those tasks off my plate,” Schumacher says.
Find Out Where You’re Adding Value
As a business owner, you need to focus your attention on strategic tasks. Of course, it’s valuable to know every aspect of your business when you’re starting. But, once you start scaling, you’ll be more effective if you’ve found out exactly what your role is and where you add the most value to your company.
Schumacher advises delegating the tasks that you can pay someone else to do. You’ll want to start by hiring people for lower-value functions so that you can focus on activities that move the needle. Then, you identify where you fit into the grand scheme of things and step back to allow your team the room to grow and do what they need to do.
As the leader of your company, you should give yourself time to spend on the higher-value tasks. “Allow yourself more time to spend on the $25, $100, and $1,000/hr tasks. Continue until you’re only spending time on the $1,000/hr tasks and then use your available time to come up with $10,000/hr tasks.”
Schumacher cautions against micromanaging as this will not benefit anyone involved. “Identify your rock stars, promote them, and stand back.
Early on in my entrepreneurial career, I was fortunate enough to learn just how terrible micromanaging is for everyone involved. Instead, provide them with the parameters and incentives to succeed, show them you trust them, and let them do their jobs. When done properly with the right people, this results in incredible performance.”
What’s Next for This Entrepreneur?
“My goal is to be able to live fully off passive income. In line with that, I’ll be converting some of the Delesign business sale proceeds to investments that provide positive cash flow – such as real estate and a few others.”
Schumacher has already built and sold two businesses successfully and knows the characteristics buyers tend to look for – and it’s not just high MRR and low churn rate.
“For most sellable businesses, they have to be delegated in a sense that the owner isn’t doing everything. A buyer doesn’t want to buy a job; they want to buy a business. And that business should be able to run without you. So make sure your business is growing, delegated and scalable.”
Stay up to date with what Schumacher is working on through his personal website schumacher.jp.
If you’re interested in other passive income ideas, we’ve put together a list of avenues where people have successfully generated a passive income stream. With some time and effort on the front end, these ventures can provide both the freedom and financial stability you’re looking for.
Other Passive Income Ideas
Invest In Real Estate (own rental properties)
Investing in rental properties can be an effective way to make passive income. You’ll need to consider how much return on the investment you want, the monthly costs of the property (mortgage, taxes), and financial risk. Clever Girl Finance advises that if you’re not up for the task of being a landlord and screening potential tenants, you can hire a property manager, which will make rental income a passive revenue stream. “Of course, this costs a fee, but it takes a lot of work off your hands. Owning rental properties is not without risk, though. For instance, the property could stay vacant for too long, or repairs might cost you a lot of money. Even so, with caution and due diligence, owning real estate can be very lucrative.”
Become An Affiliate Marketer
Affiliate marketing is a way to make money by driving traffic to a company’s website. As an affiliate your job is to generate traffic through your own content and encourage readers to click on trackable affiliate links and hopefully, they convert on the other end of those links. You’ll receive a commission for every sale made through your recommendations.
Most commonly, affiliate programs offer a commission per an action or per a lead. Some affiliate programs will reward the publisher for leads such as website clicks, downloads of an app or free-trial signups.
Find out more about the best affiliate programs for beginners and how they make money.
According to Shopify, affiliate programs are usually free to join, so there are no high startup costs. Affiliate marketing, done well, can go from a side hustle to a profitable business earning you a healthy and steady passive income stream as people are clicking your links. The content will need to be updated to keep the site active, but you will be making passive income from any affiliate sales made through the content on your site. You should pick a niche that’s small, as specialized review websites tend to be successful and easy to monetize. Focus on putting out evergreen content with monetized affiliate links as it will keep generating income for you.
Owning a content site can be compared to having real estate online. That means your site is likely to increase in value over time, and if there’s a point in which you’d like to divest of the site to release capital there are certainly options to do so.
Here you can get a free valuation of your online business.
Create Apps or Software to Sell
The app market is currently flourishing as users spend an increasing amount of time on their phones and in mobile apps. So, if you’re a developer, programmer or have an idea you want to bring to life, an app can become an excellent source of passive income.
We’ve created a step-by-step guide that details the essential things you need to know if you’re considering creating an app. Should you decide on the app route, there are several monetization models to choose from. It’s up to you to determine if you’ll include in-app advertising, a paywall for the content or charge extra for premium content with an in-app purchase feature.
Buy a Content Business (instead of starting from scratch – buy something that’s already making money)
Instead of building a business from scratch, a viable option is to buy something that already exists and is making money. An established online business is an excellent opportunity for someone looking to generate passive income online but who does not want to build a website themselves.
You’ll want to look for certain qualities before acquiring an online business, though. These are some of the characteristics of a high-quality online business worth noting before you consider a purchase.
If you want to make money while you are sleeping, passive income is your best bet. With focus and dedication, you can make it a reality and have several lucrative passive income streams.