17-01 Generating Ideas
As we go through this Passive Income Challenge, you may start getting ideas for how you can create new streams of passive income.
How do you know which ideas are worth pursuing?
17-02 Keep It Simple
It’s easy to bite off more than you can chew with your first passive income idea. If you already have a track record of successfully completing large projects, then don’t let me stop you. But if you have a tendency to get discouraged and give up too soon, I suggest scaling down your ambitions. Start small by tackling a simple project that you’re confident you can actually complete.
It’s better to complete a 30-page eBook and sell it for £7 and generate a few sales per month than it is to tackle a 200-page writing project and never get it done. The former provides some genuine value to people; the latter will merely frustrate you.
Treat your early projects as training for your success muscles. The greatest predictor of future success is actually past success, so think about creating some simple successes by taking on modest projects and getting them done and released. Once you’ve done a few of those, then consider scaling up and tackling bigger projects. Even with seemingly simple projects, you’re going to learn a lot.
You’ll get faster, and then it will be easier to scale up and tackle larger projects once you've got a little experience under your belt.
It’s so easy to underestimate how long things will take by overlooking details. With some of my early eBook projects, I’d estimate that I could crank out an eBook in 2-3 weeks, but in reality it would take me months. There are so many hidden steps that are easy to gloss over with an off-the-cuff estimate, such as creating the subject outline, researching the subject, writing the documentation, spell & grammar checking setting up the online ordering system, etc.
If you’ve never created a passive income stream before, your first project may involve lots of one-time steps like setting up an online shopping cart. But once you’ve done that initial setup work, you can create similar streams with greater ease simply by plugging them into the same system.
Try not to get overly excited about making a killing with your first passive income project. Put your attention on learning the ropes and generate a nice little stream. Then you can scale up by creating more streams. If you can generate even £50 a month with your first stream, I’d say you’re off to a good start. It’s generally harder to go from £0 to £50 a month than it is to go from £50 to £500 per month.
17-03 Inspiration Vs. Market Research
There are two main schools of thought on how to pick income-producing creative projects. One is to go with your gut and do whatever inspires you. If you get an idea for a new project, run with it right away. The other idea is to research what people actually want to buy and then create something for that target market. This is the classic “find a need and fill it approach.”
I tend to get the best results by combining both approaches. First, I saturate myself in trying to understand what people want. I can do this via online research, surveys, or just talking to people. Over the years I’ve met hundreds of potential clients face to face, so that helps me better understand their needs and what I can provide that will be helpful to them.
If you have your own website or existing audience that you can use for market research, that’s a great place to start, but you can just as easily gather information from other websites.
When I was creating my early booklets (pre-internet), I started out by making simple How to… booklets because those were relatively easy to design and create.
My booklets didn’t sell well though. So I did some market research, looking for where there was strong demand from customers, especially in genres that I was interested in. I spent hours observing which categories got the most attention.
I purchased dozens of booklets from my competitors to get a sense of what else was out there, how popular various themes were, and what I might be able to contribute that would be unique enough but also familiar enough to sell well.
I think this type of mental saturation was a good place to begin because it helped me narrow my focus, so generating ideas wasn’t an overwhelming task. I could then think about creating something in one of the sub-genres where I perceived good opportunities.
After that I began brainstorming some potential design ideas. I find that taking in a lot of input really helps when it comes to generating ideas.
When I do this, I notice gaps in other people’s creations that help me see where I could take things in a different direction, thereby contributing something unique.
Once I had an idea that inspired me, it still took a lot of work to implement it. That’s the power of market research. If you sell something people actually want to buy, you can do a lot better financially.
17-04 How to Do Market Research
I’m not really too particular about how I conduct market research. There are so many variables that you can get bogged down in analysis paralysis if you overdo it. I take a pretty light-weight approach to it.
Mainly I look for three things:
1. What are people already buying?
2. Where are there gaps with relatively high demand and low supply that I could potentially serve?
3. Where can I add value to something already out there.
Sometimes it’s hard to answer #1 directly because you probably don’t have access to other people’s sales figures. But you can often use other public data to make some educated guesses.
I could look up traffic rankings for a competitors website to see how popular it was (such as with Alexa.com). And I knew of a few publishers personally, so I had a general sense of who was making money and who wasn’t. All of this information combined to give me a decent idea of where there was good money to be earned and where there wasn’t.
During the early days, I could see that authors of self-help eBooks were typically doing pretty well. Today those markets are even bigger, especially with the expansion of the internet.
It can be a tricky balancing act between making something that inspires you and making something that people want to buy. There’s surely some luck and randomness involved too.
But I’ve seen situations where results are 10, 20, or 50 times better when creators finally agree to give customers what they want instead of trying to convince customers to want what’s been created.
Do I think you should sacrifice your artistic integrity to satisfy the public? No, I don’t think it’s necessary to do that. I think most people who feel they must choose one or the other are creating a false dichotomy due to limiting beliefs and blocks to making good money.
I didn’t feel I had to sacrifice my art to please others. In fact, I felt that paying more attention to what other people wanted made me a better artist. I liked having more customers to appreciate my creations.
If you think you have to choose one or the other, I encourage you to question whether that’s really true. Can you take the pulse of what other people want to buy and then focus on pursuing inspired ideas that will land somewhere in the general vicinity? I think that’s doable.
Much of the time when artists claim to be undiscovered geniuses and lament that they can’t make money doing what they love, I think the likely truth is that their art just isn’t very good yet.
I think some of the best art is developed with a strong social component, meaning that there’s on going feedback between the artist and the patrons.
17-05 Taking Risks
With new and untested ideas, there’s always some risk involved, but everyone has a different level of risk tolerance.
If you’re less risk tolerant, then I would put more effort into market research, so you do a better job of aiming where the demand is, that way you don’t waste your time creating something that no one wants to buy.
If you’re more risk tolerant, you can take the chance of doing something new where it’s hard to conduct market research. Success is far from guaranteed, but you might just stumble upon some previously unknown demand.
This is a matter of personal choice, and your preferences may change depending on what else is going on in your life. It’s like any form of investing. Do you want to play it safe and deal with relatively predictable outcomes, or do you want to take a chance and explore uncharted territory?
That said, if you’re more of a risk taker, you can bypass all this and go with whatever inspires you. You might hit upon something new that works, but you could just as easily end up with a total dud. Who would ever want to do that? I sometimes like doing that. It can be exciting to try something new and see what happens, assuming you can handle it if it doesn’t work out so well. This is especially doable for small projects where the downside isn’t so terrible if it doesn’t perform.
Since I have enough streams of passive income to support me, I can afford to take more chances with new income streams. But if I was just starting out, I might be more conservative and make sure I’m tackling projects where I can predict strong demand.
A lot of this research can be done with free tools and public information. For example, you can see how well any book is selling relative to any other book by checking the sales rankings on Amazon. For all kinds of products now, you can get a decent idea of how well any particular product is selling just by looking at public data.
This is not difficult if you have decent Internet skills.
17-06 Inspiration First
Sometimes I get inspired ideas before I’ve done any market research. In those cases I can still do some research after the fact to validate or invalidate the idea. Maybe I’m excited about it in the moment, but the question is: Will it sell?
For instance, I got the idea to offer personal coaching in creating passive income, but I didn’t know exactly what to offer or what to charge for it. It felt like an inspired idea that I should pursue, but I had a lot of uncertainty about it.
It’s a risk because I really don’t know how to sell myself, where we’ll be going with the flow of whatever inspires us in the moment. Part of me still thinks it’s a crazy idea, but this is another case where I feel the coolness factor of doing something new outweighs the certainty of having semi-predictable sales. For all I know, the idea might turn out to be a homerun. The only way to know is to try.
This is actually another way to conduct market research. Dive in and test your idea in the real world. Then you’ll know. The benefit to this approach is that you might just stumble upon something that works really well. Then you can build around it.
17-07 The Courage Advantage
If you’re more courageous than most people, your courage can give you a serious advantage because it cuts down on competition. One reason public speaking pays so well is that so many people are afraid of it, so it’s not as competitive as other fields. So if you’re willing to go where others are afraid to go, most of your would-be competitors will surrender those markets to you.
So to summarise the ideas in this chapter, idea selection has a lot to do with risk tolerance. The less risk tolerant you are, the more you’ll want to rely on market research and assessing demand to guide your decisions.
As your risk tolerance increases, you can afford to take on projects that rely more heavily on going with the flow of inspiration, but even in those cases, you may still choose to validate them with a little market research to give you enough confidence to get moving.
If you’re going to go through the trouble of creating something of value to share with people, I think it’s reasonable to do at least a modest amount of market research to get a general sense of what you can expect income-wise, even if income generation is just one concern among many.
What if you can’t come up with any ideas at all?
What are some of the pitfalls of market research, such as getting bogged down in thinking about your odds of success instead of actually placing bets on the choicest opportunities.
17-08 What Are the Odds of Becoming a Black Belt?
People often ask what their odds of success will be in some new endeavour:
What are my odds of succeeding as a full-time blogger? What are my odds of succeeding as an indie game developer?
What are my odds of succeeding as an entrepreneur?
On the surface it seems intelligent to assess your risks before embarking on a new venture. Unfortunately the way I’ve seen most people do this is rather silly.
Often such seekers will look for a certain statistic to help them assess the risk: What percentage of people who attempted a similar venture actually succeeded to the degree I’d like to experience?
For example, if you want to earn £5000/month as a blogger, your question would be, “What percentage of bloggers who try to generate full-time income actually earn £5000/month or more?” Suppose it’s on the order of 1%. You then interpret your odds of success as the same figure.
What does such a statistic have to do with your personal chance of success? Nothing at all.
To me this is like asking, “What are my odds of success in kung fu?” If you’re committed to becoming a black belt in kung fu and are willing to put in the time and training, you’ll probably do just fine. But if you’ve never studied martial arts and are looking for a fast and easy road to success, you’ll be sorely disappointed.
In many fields you only see a 1% success ratio because the other 99% are merely taking up space. They’re just dabblers, not serious contenders. You’ll often see this 1% figure in fields with a low barrier to entry such as blogging, acting, or music. You’ll find a small percentage of people who are really committed to mastery, but the rest have virtually no hope of notable success.
Pulling away from the pack in any field is largely a matter of choice. That choice is a commitment to mastery. But very few will make this choice because it requires hard work, resolve, patience, self-discipline, and a long time perspective.
A would-be actor who gives up within the first year clearly hasn’t made this choice. Nor has a blogger who quits after six months.
f you want to succeed in a new field where you lack experience, you should be thinking of at least a 2-5 year commitment. If that scares you away, then save yourself the time you would have spent dabbling, and don’t bother.
When you start out in a brand new field with no experience, you’re going to suck… most likely really suck. But the worst part is you won’t even recognise how truly pathetic you are. There you are, setting off on a new venture, brimming with confidence, and you’re completely incompetent and don’t even know it.
So what happens? You’re going to screw up. If you’re lucky your results will just be bad instead of painfully bad. But screwing up is perfectly OK.
That’s supposed to happen. Screwing up is how you learn. Every mistake helps you make new distinctions and increases your skill.
Consider a martial arts student who spars for the very first time. The student lacks timing, speed, coordination, balance, endurance, and flexibility… not to mention confidence. Sparring involves trying to avoid banging knees with your opponent. But everyone starts out this way.
Even the most accomplished black belts began as white belts.
As you build skill, which normally takes years to achieve competency in any worthwhile field, you move out of the 99% and into the 1%. That 99% will continue churning away with high turnover.
Dabblers will enter the field, try it for six months, and give up after concluding it’s too hard. A challenging field is good though because it means your long-term investment in skill-building will mean something, like a black belt. It wouldn’t be much of an accomplishment if it was too easy.
Imagine starting as a white belt in kung fu with no previous martial arts experience. You go to your instructor and say, “I want to compete in sparring tournaments at the black belt level.”
Your instructor will probably laugh at you. If you were to spar a halfway decent black belt, you’d take a beating every single time. If you spar 100 matches, you’ll lose 100 matches.
This is where the dabblers conclude that it’s impossible for them to succeed in kung fu.
Those who are committed, however, know that they have a long road of skill-building ahead of them. Becoming a black belt is a choice, albeit certainly not an easy one.
What’s unfair about easy-entry fields like blogging, acting, or music is that white belts and black belts are thrown into the same pool.
White belts are forced to compete against black belts who’ve been honing their skills for years. It’s totally unfair. But that unfairness is what provides the challenge and makes it fun.
When you start out as a white belt in an unfair playing field, you get creamed. The black belts beat you again and again. No matter what you do, nothing seems to work. But when you’re committed, you know that early success isn’t to be expected. This is the training phase. Your goal is to survive and to learn, not to win. That’s where you have the advantage because as a white belt, you can develop your skills much faster than a black belt.
So you train. And train. And train. And if you stick with it long enough, eventually you’ll find yourself a black belt in your field. At that level everything becomes easier because your skills have risen to the challenge.
Consequently, you’re able to achieve and maintain positive results that are virtually impossible for those who are just now entering the field. Then you’ll have to figure out what to say when people begin asking you, “What are the odds of becoming a black belt?”
Your odds of success in your field of choice won’t be found in any statistics. Success is a choice. You succeed by deciding what you want, knowing why you want it, and committing to it.
Our goal is to find multiple income streams, and the more passive the better.