I saw a quote from Warren Buffet recently that read “if you don’t find a way to make money while you sleep, you will work until you die”.
With Buffet’s background and track record you know that he was most likely referring to investing in businesses via the stock market but it also reminded me of a quote from my Dad that had similar connotations – “you need to find a business with a recurring revenue stream to build on otherwise you will always be limited to the number of hours you can work”.
He was specifically talking about getting paid an hourly amount to do something. For instance, if you are a plumber and charge by the hour or per job completed, you are limited to the number of hours or jobs you can complete in the day/week/month.
Running a business specializing in road detector loops, he was able to turn his business from purely getting paid per job completed into a monthly recurring revenue business with any work beyond the scope of the contractual requirements a bonus. This gave him scope that was never there previously.
I remember in my early days as a software developer, the goal being to have enough Systems at our clients where the recurring monthly service contracts would cover all fixed costs so that sales were actually profit. Eventually the compound effect of the monthly service contracts would also add to the profitability. This was my first glimpse of what recurring revenue was.
When we started Digital Motorworks in Australia, obtaining contracts with a guaranteed recurring revenue base was the cornerstone of our business planning. We worked with our clients to find a model where they would guarantee a minimum monthly amount in return for getting exclusivity and/or economies of scale if they secured volume use of our services.
This way if our client failed to sell our services we would have a win in getting a minimum monthly payment. Conversely of the client was able to sell more of our services, there was a tipping point where our profitability per service would be reduced and they would achieve economies of scale benefits for their investment.
The Internet has opened up more and more ways to “make money while you sleep” by allowing to put your goods and services in front of people to transact at all times.
Whether it be investing in good businesses via the stock market, investing in property or working in a business that is structured around a recurring revenue model, the concept of finding something to make money while you sleep is a very sound one.
Hard to argue with Warren Buffet on anything to do with making money. And I think my father has been pretty successful in his own way to.