I’ve realized that, whether it be on the newsletter or the blog, I talk a lot about income generators. However, there has been no definitive place where I’ve explained what exactly income generators are — I’ve only elaborated on them here and there. To have a place I can always go back to, I’ve decided to summarize my thoughts on income generators in this blog post.
Historically, there have been two modes of starting a company: building a small business, or building a startup. The difference between the two lies in the targeted growth rate, as well as the range of market cap desired. A small business aims for about 10% Y/Y growth with a value settling at around $10 million+. A startup aims for 60%+ growth and a value of $1 billion.
Obviously, the implicit differences here are massive. A small business can be anything — a shoe shop, for example — and just needs a person with decent product and business knowledge. Since it’s not going for anything too fancy, it doesn’t have to be too fancy. Startups, on the other hand, are the opposite: it has to be a killer, unique idea that builds up very, very fast.
The problem with these two modes is that a lot of people get left on the wayside. There’s obvious reasons why someone wouldn’t want to start a startup (not everyone wants to go that fast!), but even a small business has its downsides. You’re still expected to deal with a lot of competition, build up an employee roster, have a sizable amount of inventory, etc. etc…
At the onset of the Internet Age, however, things began to change. Markets became simultaneously centralized and decentralized — anyone could build something anywhere and sell it to the entire potential market in the span of a few weeks (or even days). On one hand, this put small businesses on the verge of extinction; you could no longer settle with “just” a shoe business, a Zappos or Amazon (now one company, it is worth noting) would just wipe you out. On the other hand, the costs of a business went down dramatically, and scaling became much easier. So, what are we left with?
The result is income generators. Income generators are single-person businesses that target an net profit range that matches to an individual’s desired salary. These income generators have historically been associated with content creators (bloggers, musicians, YouTubers) but as costs continue to go down we now see apps and stores being built up by solopreneurs with this purpose in mind.
The reason income generators now work is because, as was mentioned, the costs of developing a (software) product and distributing it have gotten to the point of near zero. Certainly you can’t create a great product or marketing on no budget, but a person who’s got enough business smarts can now carry themselves most of the way there.
There’s a lot of big benefits to income generators. The obvious main benefit is that it provides a flexible, custom way for a person to make a living. No longer is a person tied to the fate of a specific company, and a specific position. Now, they build their own product — whether they’re a writer, an artist, a shop owner, an educator, or anything else. This flexibility also creates freedom. Depending on how you choose to build your business, you can work remotely, and with however many hours you want. As long as you make your income threshold, you can live how you please.
With all this, it is important to keep in mind something: developing an income generator is not an easy task. The Internet Age made it possible to become an income generator — it did not make it easy. Many people have built income generators of their own, for the sole purpose of telling people that the income generator life is a cinch, and therefore misleading people on their journey. Just like in investing, if someone had really solved it, they wouldn’t be wasting their time selling $500 courses on it!
Still, it’s worth doing. It can take years to get an income generator going, but once it gets started the returns certainly pay for the work. What I’d recommend most people do is to build an income generator while they’re in normal employment. Just like with investing, starting young is recommended though not required. Also like investing, there is an optimal mix of stocks and bonds — or in this case, IG work and employed work — that varies based on your personal goals and risk preference. And even if you don’t have a great idea for what to do, it’s worth trying on the side just to see if you get something good going!