Hot Take: Why Passive Income is a Misnomer for Founders Scaling a Business

In the entrepreneurial world, passive income is often hailed as the ultimate goal. From online courses to real estate to affiliate marketing, founders are bombarded with the notion that creating multiple streams of passive income is the key to wealth. But here's the truth: for high-performing founders scaling their primary business, chasing passive income ventures can be a massive distraction and often leads to wasted time. Instead, they should focus 100% on their core business, where the Return on Time Invested (ROTI) is exponentially higher.

The Myth of Passive Income

The idea of making money while you sleep is alluring. It conjures up visions of sipping margaritas on a beach while your bank account fills up. But this portrayal is often far from reality. Most "passive" income ventures require significant time and effort upfront—and in many cases, they demand ongoing attention and maintenance.

Take, for instance, building an online course or a rental property portfolio. While these can generate income over time, they also require substantial initial input—building the course, marketing it, or managing properties. Even affiliate marketing, often touted as a passive income strategy, demands constant updates, content creation, and performance tracking.

For founders already stretched thin by their primary business, these activities can divert focus and add to their workload rather than relieve it. Instead of fueling growth, they can be a detractor from the very thing that has the highest growth potential: their main business.

Return on Time Invested (ROTI)

Founders should consider the Return on Time Invested (ROTI) when deciding how to allocate their energy. Time is the most precious resource for entrepreneurs, especially those scaling a business. Every minute spent chasing passive income could be used to improve your core offering, develop new products, or nurture key relationships.

Let’s compare the ROTI of focusing on scaling a business versus pursuing passive income. Say you’re a founder growing an e-commerce brand. Time spent optimizing product offerings, improving customer experience, or building a loyal customer base can have a compounding effect on revenue and business valuation. If successful, your business can scale rapidly, and over time, you could exit with a lucrative sale or bring on investors for capital growth.

Now, take the same founder who splits their time between their core business and, for example, building an online course. Not only do they have to create the course and market it, but they must also manage customer queries, issue updates, and compete with other course creators. The potential income might pale in comparison to what they could have earned had they focused solely on scaling their core business.

This is why the illusion of passive income can be harmful. It leads founders to chase what looks like an easy win but often results in diluted focus and effort.

The Hidden Costs of Passive Income

Another overlooked factor is the mental bandwidth passive income ventures consume. Even "passive" pursuits require ongoing oversight. Affiliate links need to be monitored for performance, rental properties require maintenance, and online courses require updates and customer service. Every additional income stream adds complexity to your life.

For solopreneurs and founders already juggling dozens of tasks, taking on additional "passive" ventures adds a new layer of distraction. The time spent on managing these streams could have been better invested in making their primary business more profitable.

The Real Passive Income: Investing

If you’re truly looking for passive income, there are smarter ways to achieve it. Index funds are a prime example of real passive income. These funds require little ongoing effort once your investment is set up and can generate solid returns over time. Unlike other so-called passive income ventures, they don’t demand constant attention or maintenance.

With index funds, the effort-to-reward ratio is vastly different. You invest your money, leave it to grow, and let compounding do the heavy lifting. This is the true definition of passive income: money making money, without significant time or mental investment.

A Focused Approach to Business Growth

For founders scaling a business, the key takeaway is this: Your primary business is your best investment. It’s where your expertise, passion, and time will generate the highest returns. Dividing your attention between multiple ventures often means that none of them receive the focus they need to thrive.

By concentrating 100% on your business, you position yourself to achieve greater success, faster. That focus allows you to optimize processes, innovate, and ultimately build a company with long-term value. When the time comes to sell or bring on investors, the payoff will likely be far greater than what any passive income venture could deliver.

Conclusion: Passive Income Isn’t for Everyone

While the allure of passive income is strong, the reality is that it’s not as passive as it’s often portrayed. For founders scaling a business, the time ROI from focusing on their core operations is much higher than chasing multiple income streams. True passive income is best achieved through investments like index funds, which require little ongoing effort.

So, next time someone suggests building a passive income empire alongside your business, think twice. Focus your time and energy where it counts the most—on growing your business. That’s where the real value lies.