Victus Spiritus


Hourly Wages vs Income Streams

06 May 2010

Work primarily falls into one of two categories. The majority of work is hourly labor. We perform some work and get paid for the service. Superstar employees can make incredible salaries, but these cases are the exception and not the rule. All hourly labor jobs cease generating income the moment you stop working. It's pretty evident that this is not a type of work model that is scalable.

The second category is work that cultivates an income stream which may go on indefinitely after it's creation. The most common form of income stream are interest payments. Store a pile of cash in bonds or the bank and get regular payments. Obviously bigger stock piles of cash generate greater income streams, although investments cover the spectrum of exchanging risk versus reward.

One way to build a pile of cash is life savings. Work at an hourly job for 30-40 years and stow away 10% per year. At the end you should have a few million to live off. Only a few decades ago, many jobs had the security of a pension upon retirement. Businesses and government would set aside a fraction of income and put it towards a pension plan. Nowadays there are number of ways that people can save money while they're working (401ks, 457, 404). If you love whatever job you're doing this is a great way to live. But for me doing the above isn't fun or interesting.

I think this is the hard way to nurture an income stream, and requires many years of doing service work. As a fat and sometimes lazy guy, I find nothing more abhorrent than suboptimal solutions that require more effort*. So how does one go about building an income stream without a mountain of cash?

Remember earlier when I mentioned risk versus reward. Well there's an equally applicable proverb of business which is he who works on the right problem has a chance of winning, or I just made it up, but it sounds proverbable. You gotta be in it to win it is applicable, but playing lotto isn't the right solution to crafting an income stream (Jimbo). That's like donating to the government in hopes of being selected the next secretary of state, it could happen but there are better odds elsewhere. In this case the problem is generating a wealth stream, and there's no better model than a business entity to solve it.

Ideas don't scale themselves

Whether you build a business yourself, buy into one, or get hoodwinked into one while enjoying some social media, your goal should be to build frameworks that function without you in the loop. I've read or heard many times the term: work on versus in your business. That just means focusing the majority of your time and energy on refining and growing the business model. The problem is zeroing in on a need that you can best fulfill with a new business, and it's the first challenge of a startup. Tackling the right problem along with getting a few other important things right (team, culture, salesmenship/marketing) leads to traction. Some business models take a while to develop, as in get millions of users and then monetize their eyeballs with your network. Other models work right out of the gate, where each user is a paying customer.

*= engineering pet peeve: ok maybe I loathe false or pseudo optimal solutions just as much. That's when you use an optimal solution to a theoretical problem which isn't the real one you're working on. Real problems almost certainly requiring going "out of book" or extending theory into heuristics based on the nuances of the case. It troubles me to see some folks get so wrapped up in methodology or theory that they don't recognize the subtle differences between what they're working on and the reality of the task at hand (myself among the guilty).