In the mid-to late-00s, as we started to realize the vast potential of the internet, a buzz term popped up that still pervades today. It's a powerful buzz term, to be sure, and for a few years it really did provide exactly what it advertised. Like most fads, it has faded away, but since it remains such an attractive proposition it still entices thousands of people to make poor decisions about building a business. 

That buzz term, of course, is "passive income." 

In a way, generating passive income is the new American dream. That is, getting something for nothing. The idea is that you spend time, effort, and money setting up a business, but then just sit back and watch the profits flow. While you're out at the country club, people will just visit your website and take whatever action it is that makes you money. What could be better?

Like most schemes of this nature, the passive income craze was indeed too good to be true. A few factors played a key role in this.

Market saturation: As people started to realize that you could build websites that provided passive income, more people jumped on the bandwagon. That diluted everyone else's share of the pie, meaning passive income became less viable as a primary income.

Tactics spread: One of the main ways these passive websites generated income was by ranking highly in particular Google searches. Five, ten years ago, there were surefire ways to manipulate Google's search results, and it was cheap enough to do so. But now that these tactics have spread, it becomes more difficult to rank for those lucrative keywords.

Google's crackdown: When people manipulate search results, Google loses. SInce it's their property, they'll do what it takes to protect it. That they have done, issuing a series of updates starting in 2011 that have destroyed the rankings of these passive sites. If people can't find them in the search rankings, then they can't make that sweet passive income.

The problem with the passive income trend was that it was flawed from the start. In order to create a consistent income stream, you have to provide value commensurate with that income. There have always been schemes that allow people to accellerate the process, but the same thing happens every time. Just as with the latest one, you start to see market saturation, you start to see the same old tricks abused, and eventually you see a governing body crack down. 

There will surely be a new get-rich-quick scheme that pervades for a few years. But like all others that have come before it, it will provide only for a limited amount of time. Given how advanced our communications systems have become, chances are the next scheme will fall much more quickly than the previous ones. There's just too much at stake, and the power that be have all the inventive in the world to strike down anything that harms their own income streams.

Building active income

The solution, as it has been since the dawn of commerce, is to build a business that provides services that people want, in a way that people enjoy. Oftentimes that comes from our own struggles and frustrations. When we hit walls and find ways around them, we can turn those solutions into businesses, so long as there are many others who share our experiences. That is how almost all of the world's great companies started. There was once a problem, and now the company solves that problem.

A business of this type, of course, requires much more effort than a passive income company. With the latter you had precious little to do. You had to buy a domain, get a simple web page built, find affiliate deals, sort through credit card processing options, and optimize the page so it ranks for lucrative keywords in Google. If it's so simple that anyone can do it, anyone indeed will do it. But when you have to do market research, find leads, set up incorporation with your state, find a payroll service, hire competent employees, and, most importantly, build something of actual value, well, the barrier to entry becomes much higher. 

It sounds like a great dream, to earn income without having to put in any effort. It's the lazy man's, or woman's, greatest fantasy. For a while, there were opportunities to make that happen. Yet those who went down that path have seen their incomes dry up. Now they have to search for the next get-rich-quick scheme -- or, gasp, find a job that provides actual value. That is the key to starting any business. If you're not willing to put in the effort to create products and services that people want, then you should probably forget about starting a business.