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The next category of income production that I will explore on a very surface level is the subject of many popular books that I’ve created notes for. This is…
Category #4 - A Business/Company/Start-Up
This category may seem a little redundant in comparison to the previous two categories: information content production and freelance/consulting work; both of which should be considered as businesses themselves. However, this category is more-so geared toward a business or businesses that are largely disconnected from you personally (i.e., not built around your own personal service or brand). This can include anything from creating your own product/service to sell online, some eCommerce variant, and popular online business strategies like drop-shipping and Amazon FBA. These include the types of businesses that are popularized by books such as Tim Ferriss’s 4-Hour Workweek, The $100 Startup, and The Million Dollar One Person Business. These businesses utilize low and often bootstrapped starting costs and aim to eventually limit personal involvement by outsourcing their business operations (also described in Michael Gerber’s The E-Myth). I would also include businesses or business ideas that have much loftier and more high-growth oriented goals.
Once again, this is a category where the hours worked-income earned ratio can swing wildly in either direction. Ignoring the dismal statistics concerning the survive-ability of most new businesses and contrary to the other extreme examples (businesses that immediately began seeing revenue success after inception), most businesses require a substantial time investment upfront before they begin to see any semblance of success. In this case, the hours worked-income earned ratio is lopsided in the favor of hours worked. The goal is to tilt the ratio in favor of income earned and oftentimes minimize the hours worked to little or none (woo..passive income).
Starting a business is tough sledding and the odds simply aren’t in your favor statistically speaking. I tried to explore this in my post, Surviving Survivor-ship Bias, by framing it as a probability problem that could be addressed by simply testing a large number of possible business ideas and filtering the least successful ones out through a series of incremental stages. But sometimes even generating an idea itself is difficult despite many books providing simple approaches such as seeking a convergence between a hobby or interest, a problem to be solved, and a size-able market that would be interested.
However, if successful, the potential earnings ceiling is almost limitless and much higher than the other categories that I’ve addressed. In the popular book, The Millionaire Next Door, a large percentage of the millionaires surveyed in the book were categorized of having the occupation: Business Owner. Despite this, I can’t ignore the countless business owners that unfortunately did not share similar success or even found themselves deeply in debt from their entrepreneurial endeavors.
So proceed with caution and keep costs low but don’t stop trying even if you fail multiple times.
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