More on paid work versus building a business
In the short term, paid work is vastly more profitable. Even though I work as a contractor, not a salaried employee, paid work is far more predictable, reliable and profitable in the short term.
This raises the question: if my goal is to earn passive income, I have two major options. I could work and earn $N/year plus 0.07 x $N/year in passive income after that (ignoring compounding and expenses). Or I could build this business and start from zero income and slowly build it up - but it’s all ‘passive’ income.
There are almost no sources of income that are truly passive. Even leaving cash in a bank account requires some paperwork and monitoring. It’s a very small amount of work, but it is finite. Another way to look at this might be to compare hourly rates. Increasing the hourly rate is obviously good - you earn more money for the same work, or earn the same money for less work. So ‘passive income’ streams are essentially trying to build income streams that require very little work for a large income - they have a very good $/hour rate. A ten-year property or index fund investment might be worth tens of thousands of dollars per hour. This ignores the fact that you’re very limited in the number of hours that you can do, but it doesn’t matter so much - even if the number of hours is limited, it’s still worthwhile to take them and spend the rest of your time on the most profitable work available.
So by starting this company, I’m acknowledging that my initial per-hour rate is going to be terrible. I’ll be losing small amounts of cash in the beginning, in fact - as cheap as it is to start a software company right now, I’ve spent about USD$20 on this domain name and that puts me into the red. The idea is that over a longer time period I won’t have to put in so much effort to maintain the same income level, and so my effective per-hour rate will rise above that which I could get by working a standard job.