Post: #1

Consider this a warning for those of you looking for passive income.

I co-founded a business a while ago where I was primarily a capital contributor. It wasn't a huge investment on my part, but money nonetheless. The deal was that I would supply a decent chunk of the funding, and the other person would provide the actual service. He does the work, I get a percentage of profits, break it down, split it up, get your laugh on, etc.

Before I gave up the money, I had all the leverage because in this market cash is king. Once the money was invested, though, I had very little control in how things operated because, while on paper I owned a good-sized stake, the practical reality is that the person providing the service ran the show. Fine if the person running the show is competent, big problem if he or she isn't. And he wasn't. But because I wasn't actually providing the service, I could only control how it was delivered to a limited extent. Long story short, the business failed and I wasn't in a position to save it. Rather than throw good money after bad, I walked away.

The moral here is be careful about getting involved in situations where you are only contributing capital, or anything else that is only a commodity (e.g., business support functions unrelated to making or delivering the core product or service). Far better to be the person with the in-demand skill driving the business. This may seem obvious to some of you, but as someone who only wanted passive income, this was a reality check. I'll be much more careful now about investing in anything that isn't based and dependent on a skill that I actually possess.

I call what happened to me the Dame Dash Effect after former Roc-A-Fella CEO Damon Dash. Dame was basically the midwife of Jay-Z's career and, seeing Jay's success, became a little too confident in his own abilities and place in the world. He didn't realize that what he brought to the table - basically savvy and a big mouth - were commodities in the music industry. He was replaceable; Jay-Z, Roc-A-Fella's bedrock talent and most successful "product," was singular. So when he and Jay fell out, Dame found himself shipwrecked in the industry. Last I checked he was trying to launch a music player to compete with the iPod and a website to compete with Facebook. Good luck with those.

Don't get Damed pursuing passive income, fellas. Make sure that a business relies on you just as much after you invest as it did before you cut the check.

Post: #2

I thought this thread was going to be about...Ah.... forget it

Post: #3

(04-20-2012 05:37 PM)el mechanico Wrote:  I thought this thread was going to be about...Ah.... forget it