Leveraging Active and Passive Income

QUESTION

Dear Joey, I’ve worked for a long time as a graphic designer in ad agencies and in-house at a big telecom company. During that time I did a lot of design projects. Then I decided to start my own design studio, which actually is only me, but I hire freelancers if a project requires it. 

Over the last two years I have been thinking about the future of the company and how it depends so much on me. I am the designer, but I also run the business. Most of my clients hire me because they know me and they know what I can do. I want to grow the company, and I feel that at some point I will need to hand the design tasks to someone else, which requires at least one hire. I feel like I will have to focus my efforts on growing and getting more clients, projects, or ideas for products. 

So my question is: How could I create a plan for running a creative business without being the guy that does everything?

—Juan

Have a question for me? Submit it here.

ANSWER

Dear Juan, you’re in a powerful spot right now. you could continue being solo, start building a company, or choose to move away from all of this entirely. It’s a great place to be—you have options.

Nine years ago, I found myself in the same place as you. I was running a solo design studio, hiring when necessary, and on the verge of committing to going all-in on building a team. We know how this story ends—I started Baronfig—but why did I make the sudden change?

There is a key dichotomy at play: Active vs. Passive Income. The former is what made me pivot my career and build Baronfig.

• Active Income: The time you work directly correlates to your income. The more you work, the more you make (but not always); conversely, the less you work, the less you make (almost always).

• Passive Income: Your working time is decoupled from your income. Work you perform continues to supply you with income even if you are not actively working.

A design studio is essentially a service business; it’s an Active Income venture. It necessitates that you always have your next gig lined up in order to keep a steady income stream. A product company, such as Baronfig or Nike or Starbucks, are examples of Passive Income ventures. You do not need to be actively working to receive an income.

I say all of this because it’s important that you consciously make the decision to tie your income to your time. Even if it isn’t you who is directly designing, you’re still the one going out and getting new clients. It creates an immediacy—and an urgency—that can be quite stressful if you aren’t prepared for it.

Having said that, there are countless successful Active Income entrepreneurs and businesses. And every single one of them started in a spreadsheet.

Your next step is to create a business model in Google Sheets or Excel that represents the fundamental business incomes and expenses: employees, studio space (or a Zoom subscription), marketing costs, taxes, benefits, and so on. Don’t worry about making this hyper detailed or entirely accurate—right now you just want to get a picture of what your business could look like. Once the sheet is drafted, you’ll be able to push and pull levers to see exactly how a variety of scenarios could play out, including how and when to make a new hire.

In the end, I chose to perform Active work on a Passive business. Baronfig sells products whether we show up, but by showing up every day we’re committed to growing the business beyond what it is today.

Good luck. Regardless of what you choose, you’ll learn something. And you’ll be able to leverage that knowledge for the next decision.

—Joey

My very first design studio: the kitchen table. Image circa 2012. I have since become a lot neater.