The "Passive Income" trap ate a generation of entrepreneurs

This article really felt like a misdiagnosis to me.

Sure, a lot of these people were just buying hype from these "get rich from drop shipping!" influencers, just like a million other suckers who got dollar signs in their eyes with real estate schemes, pyramid sale schemes, yada yada, a tale as old as time. I don't think this "passive income" trap is really anything new, and I don't think it was some unique thing that "ate a generation of entrepreneurs", as if that trap didn't exist then instead we'd see all these successful people.

Instead, what I think has drastically changed over the past 40 years or so is the ability of a solopreneur to make real money. Just look at all the posts on HN asking about how much people make on their side gigs. You rarely see anything more than a couple hundred bucks a month. There are notable exceptions, but unfortunately a lot of those notable exceptions are scammy, spammy business models. It's just simply much harder as a small/smaller business to make money and compete with the big boys. Wealth inequality doesn't just apply to people, but also companies. For example, in the past many entrepreneurial types may have started retail stores, while now it's incredibly difficult to compete with the likes of Amazon et al. I read an article recently that the number of public companies has halved compared to a few decades ago. The Wilshire 5000 stock index, for example, actually only includes about 3400-3700 companies now.

> I've met dozens of smart, capable people who had actual energy, and who spent their entire twenties bouncing between passive income schemes instead of building real skills // real businesses // real careers.

The author is acting like it hasn't always been this way. But it always has.

There have always been people who felt the allure of the get rich quick scheme. Its always been true that if they just spent the same effort on doing things properly they would probably make it but instead they bounce from one stupid scheme to the next.

Often its combined with some ideology about how the normal world is full of suckers and they are going to escape by not playing the game. Fraudsters love to target people who want to pull one over on the world. They are easy to manipulate so they usually fall for it when presented with an opportunity too good to be true.

The article, with a couple details about the specific examples changed could have probably been written in victorian times.

I appreciated when "passive income" was the flavor of the week because it was a good signpost for people you could ignore. In particular anybody who didn't understand that you could assign a present value to future income, or that infinite series can sum to finite values. Seriously, the prototypical example of being an author is not particularly passive income lol! A book being print-on-demand indefinitely != infinite income. 99% of copies will almost certainly be sold within a few years, not least due to active marketing on your part. It's very likely to be a worse deal than getting paid a quite modest and disappointing sounding amount up front.

> Free to do what? Sit on a beach, apparently.

Quite the opposite for me. I'd like to have freedom to work on things I want to work on without "paying rent", "paying medical bills", or "short term profitability" being a constraint.

Very well written article, it gets into the core of the problem and explains the hidden patterns. I want to articulate few other variations of this just as a reference.

- The productivity gang, if everyone is so productive and so well organised then what are the outcomes of this productivity?

- Self help - if self help books are solving real problems then where is the need to buy multiple self help books?

- The course trap - if someone is already earning millions dollars where is the need for him to sell $699 course

These are some questions I would ask myself regularly, there is nothing right or wrong because end of the everyone has to servive.

> Free to do what? Sit on a beach, apparently.

The author apparently never read Tim Ferriss’ The 4 hour work week which not only whiteboarded some of the described schemes 20 years ago, but also had an illustration of a hammock suspended between two palm trees on the cover.

That was the dream: Set up a system, live on a beach.

Have we all forgotten Tim Ferriss' book 'The 4 Hour Work Week'?

It was enormously influential and was likely involved in every one of these failed entrepreneur's ventures

This discussion reads like 'staying inside from 2019-2022 changed social structures' without saying COVID once

"It was an ouroboros that had incorporated in Delaware and was running Facebook ads," is my favorite line I've seen in a minute, great read

Got trapped in an Amway pitch in my teens and have been inoculated against such things ever since.

One thing in the article struck me as way too optimistic:

> What actually makes money hasn't changed. You find something people need. You get good at providing it. You charge a fair price and you keep showing up even when it's tedious and even when you don't want to. You build relationships over years. You build reputation over years.

You can make money doing this, yes--but most people who are really rich don't. There are lots of ways to game the system that don't involve the kinds of wacky things the article talks about.

“You can’t cheat an honest man.”

While that isn’t always true, honesty is a great defense against being enlisted in scams that promise easy money.

this is unquestionably the best thing I've read on hackernews this week, perhaps all this month. should be required reading in high school, for the mental lens it provides.

Nice blog post, but I have to say that having a link on top of the page to some creative agency subscription service is quite ironic. These services are a dime a dozen, providing the same zero value product to the users, advertising on a cool looking website done by outsourcing to some guy that vibecoded it.

A more hasty fellow might have flagged this post as self-advertisement without necessary tags.

As the old saying goes: the best way to make money on the internet, is to tell other people how to make money on the internet

Great read. Didn't realise how widespread this was, and I know someone who is stuck in this system.

How would you approach someone to help them out of it? Don't think I can just throw them this article and say "you're wrong".

As someone who had actual passive income (small amount, a few hundred USD/mo) prior to my life being ruined by a medical accident: I agree (I killed my site because it was the right thing to do, I could not generate content for it because I couldn't function, so I did not want to waste the time/money of my users).

One thing the author does NOT see, however, is that the local folks doing all the hard work like mowing lawns, building furniture, etc. are in absolute panic over "AI" because their niche little lawn mowing/car washing/house cleaning business has been determined to be irrelevant by ChatGPT, etc. Oh and before you ask, there are folks claiming they can solve that exact thing, and those hard working folks are buying those products, hoping it will solve their downtrend in internet leads.

“The game looks easy, that’s why it sells” - Elliott Smith

Back when I was young and motivated about being left wing instead of being old and jaded but still left wing, we called people who lived off other people's work or by profits without effort "rent seeking social parasites"

I like the sound of a "rent seeking social parasite" trap.

As the Mikado says in the eponymous Gilbert & Sullivan opera:

"something humorous, but lingering, with either boiling oil or melted lead."

That was before I became old enough (as I am now) to live off my superannuation and pension, which is also "passive income" but joy of joys, not a side gig. I'm not in denial about where my pension income comes from. It's other people's labour. That's what I'm invested in.

There is nothing wrong with pass income, exchange time for Money by definition has its limit and only when your money compound you still to build savings then wealth. I scroll through half the article and the only under luring reason the author came up with is that dropshipping guy don’t care. People who don’t care have little chance at successful entrepreneurship anyway.

Running an online store isn't "passive income."

Passive income is from rental properties, mutual funds and (my dream) a rich uncle's trust fund.

Get-rich-quick schemes/scams existed long before this generation.

Side note: after drowning in LLM-generated content, it's pretty refreshing to read something written by a human. They're a pretty good writer, too!

I’ve met a lot of “passive income” folks over the last few years, and all of them sounded like their businesses were very actively managed. Never made much sense to me.

I do disagree that all sub$100 blenders are the same, though. But still! The main reason restaurants use Vitamix blenders is that they are so much safer when blending burning hot stuff, like soups. When you turn off a normal blender, you’re fairly likely to create an air bubble that pops a little later, sending drops of very hot liquid into the face/eyes of the operator. A Vitamix, if you turn it off correctly, does not create the bubble. This is irrelevant for most home users, including me. So I don’t have one.

Isn't passive income a cornerstone of of the Rich Dad Poor Dad Books? This long predates 2020. I would say selling masks and only being $800 in the hole is a lot better than starting a "regular business" and down $80k-800k.

Passive income are just get rich quick schemes that were common decaded ago.

I started a business like this, but it wasn't passive. I shipped everything to my office before inspecting and shipping product out.

It lasted almost 10 years with 1 million annual revenue.

It was not passive.

I'm partially familiar with this ideology that the author refers to, but I think it's important to separate it from actual passive income:

dividends and treasury bonds give passive earnings, you need capital. the "passive income" savants did not and do not have capital.

case in point: it should not be noteworthy that the author's friend was "$800 in the hole", it should be such a rounding error that it couldn't be any of Joan's concern. And honestly, it probably isn't and Joan put an obsessive amount of weight into an off-comment.

$800,000 in treasuries, on the other hand, now you have passive income - only ~$37,000/yr - but enough to live like a royalty in South East Asia for the next 30 years, passively, followed by getting all $800,000 back.

Class inequality aside, throwing darts at the wall and seeing what sticks isn't a bad business strategy, and you really don't need to be passionate about any particular business idea to collect income.

I hope Joan's friends found something that worked from them. For me its just stay employed so I can accumulate capital for the side projects. Sometimes side projects become bigger than the employment, but my businesses are just expeditions, not forever projects.

I've never watched dropshipping influencers but I did sell some of my own electronics on eBay and noticed some opportunities in the process. Sometimes I put up identical listings as someone else's at a wildly inflated price, and people would buy from me because it seemed more serious. I would buy from the cheaper ad and put my own buyer's address in the shipping destination. Never seeing the product. Not scalable as I think its against the one of the terms, but you can do it between marketplaces too.

Legit Vitamix blenders are great though

This is horribly written but largely true.

I blame Tim Ferriss and his "4 hour work week" book. I belive he talks about selling vitamins and letting some guys in India manage his site. Doesn't get his hands dirty. (This is from memory, so please forgive any misconceptions about it).

"Passive income" as your only financial salvation is one of those memes that broke off from the MLM "tool scam" industry, that is, selling courses, seminars, and other training materials to people in MLMs on the pretext of teaching them sales, marketing, and business, but it's really just brainwash material designed to keep them from leaving. The other big one is positive thinking/the law of attraction/"The Secret". If MLM is the kaiju, these are the spider-things that fell off the Cloverfield Monster's body and started killing people in the subway tunnels. But like how Robert Smith performed with Siouxsie Sioux as "The Glove" while still fronting The Cure, these memes have built plenty of side scams while still enjoying friendly partnership with MLM itself.

Met a guy that ran some dropshipping thing in a bar once, once he found out i was a programmer he kept on trying to get me to fix his website for free because it was easy, would not take no for an answer. I just kept upping how much money i would charge him till i got sick of it and left.

I knew a few guys like that in crypto too, before crypto came along and they got into that, this guy told me he’d written a twitter app, it was a bot that pumped gold at some influencers command. Spurred me to write an app though.

There's a type of similar trap for devs, not necessarily a passive income trap because most go for a saas and accept the infinite-version release cycle.

What some devs usually fall for ( not by watching some youtube video, but by falling into the idea organically on their own as a kind of emergent behaviour ) is doing the minimal effort of a saas, like a template of the necessary part without adding the actual value.

The way this most often presents itself is a payment proxy, think about the minimal requirements for any software service, it charges money, so that's where they start, a stripe account, maybe an LLC, payment links or payment tables, they can now charge money. Then they make a frontend, a website, of any kind, this comes first, not to serve some kind of need, a landing page, and the actual product is a landing page as well, use react as well because that's the thing you do.

Finally, what is computing, it has something to do with data, so let users upload some images or videos, then you let them charge users for it. Bam, you have now reached the same app SaaS that millions of indie devs developed, like a patreon thing, an OnlyFans if you allow that shit, a gumroad. A host that allows uploaders to charge money.

If you don't even want to go through the hassle of hosting the images or content, you can just let the users upload a link, and charge for that

Must be thousands of these Linktree, campsite, taplink, patreon, cafecito, matecito, tecito.

The dropshipping thing is similar to this but it has a physical component, the idea of a business is just the minimal core, a caricature conception of what a business is, you buy a thing, and you sell it for more.

Yeah, I don't think I could do a pure 'passive income' thing with no 'soul' to it, but there is something to be said for building a business that runs and makes money even when you are asleep or on vacation. This is something that some 'passion businesses' where it's all about the founder and their skills, fail to do.

I'm not sure passive income is the right way to describe a drop shipping operation where you have to interact with customers. Passive income is $VT.

Everything I'd want to do on a "side gig to iron out the kinks and then eventual business" basis is regulated to the point where that path is economically impossible and the only way to be in the black is to take out a big f-ing loan, quit your job and go all in on your new business. And it's not just me, all my buddies have this gripe. We've all got skills and experience and equipment outside our immediate careers and we'd like to use those to provide value to people but there's just no way to do that inside the rules and none of us our interested in risking our retirements operating outside them.

I just upped my retirement contribution and decided that the big evil BigCos can do all the value creating and the finance middle men can have their take.

I guess that's the reason everyone does the slumlord or VRBO thing.

This article has a narrow definition of passive income, limiting it to these low-barrier-to-entry schemes. Other parts of the FIRE world have emphasized being a landlord or flipping houses, for example.

I personally made it happen by working a FAANG SWE job for 13 years, not getting sidetracked by the startup cult, saving and investing 70% of my after tax income, etc. And no I didn't get into crypto, but I still managed to make it with conventional investments.

In fact, I chose to pursue a career in the tech industry in order to pursue financial independence in the first place. Because I knew back then (circa 2005) all the tech Kool aid was BS. That "don't be evil" was just a facade. And time has proven me right and my haters wrong, those who thought it was unethical for me to place wealth building ahead of career building.

It's been four years since I've been out of a job. Now I'm creating more passion oriented content. I'm never bored.

It's like the flood of AI shovelware projects being spammed here daily.

Were these the people who were really going to do anything substantive anyway? Or just the shortcut-taking types?

>But zoom out and what you had was just an enormous machine converting human ambition into noise.

Ah, the story of a generation

"Passive Income trap" wantrepreneurs haven't really gone away, they have just shifted to crypto rug pull culture and now prediction markets and app-based gambling.

They'll keep existing as long as the root cause that creates them (massive wealth inequality in general and the growing delta between productivity and wages) exists, so probably until our financial systems fully collapse in about 2032.

I literally roll my eyes when people tell me about about some massive market opportunity that they feel like they’re better positioned to arbitrage away than people with more capability / infrastructure / domain expertise - and can’t explain why those market participants are ignoring this “obvious” opportunity

Thanks for posting, great article and I read one of Joan’s pieces earlier this week without realising.

This article really felt like a misdiagnosis to me.

>You rarely see anything more than a couple hundred bucks a month. There are notable exceptions, but unfortunately a lot of those notable exceptions are scammy, spammy business models.

I suspect this is largely sampling bias.

I host meetups for indie founders, and several attendees earn their living through solo businesses. When I go to conferences like Microconf, I meet lots more.

The problem with measuring financial success by who posts about it on HN is:

* The more someone is making at their solo business, the less they want to blab about it and attract competitors.

* The people earning at the low end are more desperate for people to see what they're doing so they can pick up new customers, so they're more likely to talk about their work.

* The more successful founders are busier and spend less time posting on HN.

We started a trophy and award business because my spouse was already making shirts and stuff so we had most of the equipment. The overhead is really low thanks to quick shipping from a large employee owned national supplier (seriously, JDS industries is fucking awesome).

It's enough to pay for itself easily and pay for a vacation or two a year, for about 4 hours of work a week. If we really put effort in, it could replace our day jobs.

Where most people go wrong is their expectation. We expected this to fund a vacation and maybe car payments. That it's doing that is exactly right and we don't want to take it any further. If people had that view, instead of feeling like they have to make a billion dollars, I think side gigs would be a different beast entirely.

> Instead, what I think has drastically changed over the past 40 years or so is the ability of a solopreneur to make real money.

Hard disagree.

As the article notes, I think if you concentrate on a real business, not a scam-y 'get rich quick scheme' business then, especially with the internet, its never been easier to run a solo business at scale.

For myself, I wrote an app as a side hobby, which then took off, so I started working on it part-time, then moved to full-time when the revenue justified.

It's now growing to where it exceeds what I would have made working for someone else.

Note this took 7+ years of constant work, improvements and care.

It's the type of dedication that makes you competitive with even larger organisations.

And the time required to be a 'success' ensures that you won't have any competitors who just want to make a quick buck or get to "passive income" within a year or two.

Didn't feel like a misdiagnosis to me. My spouse around 2017 was one of those that got sucked into a course to earn income with an Amazon store. As I read the article basically every point resonated with my experience.

The dog walking business example was also appropriate in my mind. My spouse fortunately broke even, minus time, on her attempt with drop shipping garbage nobody really needs. Now she makes decent money with her oil paintings. Not "passive income" but real money and profit. Not enough to retire (that's what I am for!) but actual money nonetheless.

>what I think has drastically changed over the past 40 years or so is the ability of a solopreneur to make real money. Just look at all the posts on HN asking about how much people make on their side gigs.

is someone making money on a side gig really a solopreneur? By definition a side gig is not something you expect to make significant amounts of money on. if a side gig starts generating significant amounts of money then you would probably make it your primary gig.

The article's example is a person can't even be bothered to understand what the product he's selling is for, and doesn't appear to fully grasp they're losing money. Even in much better circumstances, success would presumably remain elusive.

Some people just lack the capacity for this sort of thing, and unfortunately fraudsters target them by trying to convince them otherwise.

Please keep up this mentality because it means less competition for the rest of us.

My current read of the situation is similar. If you go to other countries, there are slews of small shops, even in run down areas. On top of that, in places within Asia, the malls are also open and full of regional chains. It also feels like there's such a wider variety of certain goods available, because the little bakeries are doing their own thing, while in the U.S. seemingly everybody is eating Costco danishes.

"Passive income brain" people are not the only one's trying to "build revenue engines," that same sort of talk exists in corporate America. There are already people that that own companies which are there "to generate passive income for me," right now--there's a whole class of millionaires and billionaires that don't have to work. Passive income people didn't ruin the "content quality of the entire internet" and are far from the only ones doing so. Many of these folks are likely the ones that would have owned a hardware store if America didn't ignore it's regulatory duties while preaching about how "important" small business is.

In the U.S. situation really seems to have fossilized into a few big players/platforms, and they continue to freeze up through the process of things like private equity roll-ups. There's a thread on the front page right now about Amazon's alleged price-fixing tactics, which hurt customers and small businesses. Further: Real-estate is an investment, so for most being able to pay commercial rents is a pipe dream. Healthcare is tied to employment, so people are less free to try and start something other than "on the side."

American's choose "convenience" when shopping and to put people in power that serve these large companies or their owners, not small businesses or communities. Dropshipping, creating a "sweaty startup," etc... it's all just people trying to make do within the system they're trapped in.

I don't think there was ever a time where a solo-entrepenur could make real money without putting in lots of effort and taking lots of risks.

We remember the success stories, we don't remember the bankruptcies.

> Instead, what I think has drastically changed over the past 40 years or so is the ability of a solopreneur to make real money.

Part of that was accurately diagnosed by the article in the bit about the dog walking business vs dog walking platform.

My partner bootstrapped a successful full-time cleaning business that she ran for a few years and the limiting factor was basically her ability to hire and retain good employees. A physical cleaning business has no path to scale like a tech company though.