Don McLean, the writer of the hugely popular and mildly confusing song American Pie, was once asked, “But what does it mean?” His reply: “It means I don’t have to work any more.”

Ah, isn’t that the Internet dream!

The Internet holds out hope – and hype – for unlimited passive income. You just find a hot market, create a product, get traffic flowing to the site, make lots of sales, and sit back in a deck chair on a beach in Bali, occasionally checking your bank account to see the numbers ticking over. That’s true passive income.

You know, for some people, that is the reality. It is possible. And I do know of people who are living exactly that lifestyle.

But the other thing that’s common with every one of those people is that they worked pretty hard to get to that stage.

And that’s where I see many others go wrong. That passive income stream is possible, but it doesn’t happen immediately.

In fact, let’s break this down into four separate cash flow streams:

1. Active income: This is where you put in some personal effort, and generate some income. Most businesses start out that way, and some never get past this point.
2. Bundled income: You still put in the effort, but now you get more money for that effort. For example, if you’re a professional speaker, you’re still making presentations but you also sell books and CDs at each presentation. If you’re a retailer, you bundle products and services together, so you make more money from each sale.
3. Recurring income: You still put in the effort to get new clients and customers, but you now sell them something that brings you regular income – such as a membership site, a retainer agreement, a “wine of the month” subscription, and so on. In other words, you still have to put in an initial effort, but that results in ongoing income.
4. Passive income: This is the truly passive income that we all dream about. You might still have to put in a lot of marketing effort, but you generate income passively from sales (online or offline).

All four income streams are possible. The trouble is, many business owners who are currently earning mostly active income think they can just flick a switch, buy a software product, hire a consultant, or make one change to transform their business into a passive income business. It just doesn’t work that way. In fact, generating passive income is like running a completely new business.

If you already have active income, it’s far easier to add bundled income and recurring income. You might never get to passive income, but that doesn’t matter, because the other income streams might give you everything you would ever need.

Evan Carmichael operates one of the most popular Web sites for entrepreneurs, and I have been a regular contributor of articles to his site.

He recently featured me in a guest interview, asking me questions about business and entrepreneurship. Here are the questions he asked:

1. Why did you start your business and who was your first customer?
2. As a business consultant what is the best advice you can give to entrepreneurs?
3. What would you say is the most important aspect of a business?
4. What are some typical assumptions business owners have about their own business?
5. What is the best advice you can give to entrepreneurs who need help staying motivated?
6. What are some tips you have about company branding?
7. What are some tips you have regarding social media marketing?

If you’re interested in my answers, read the full interview here.

I was recently helping my nine-year-old nephew Riley with a science experiment, which he was going to demonstrate in class the next day. It involved some weird combination of flour, baking soda, food colouring, straws and bottles, and we were able to create some sort of gas that bubbled, frothed and made a clear liquid change colour.

It was great fun setting it all up! But after we did the experiment the first time (and it worked!), Riley was full of questions about it – like how to make it last longer, how to make more bubbles, what would happen if we changed the mix of ingredients, and so on. We didn’t know the answers, but we were willing to try different things to see what effect they had on the result.

I wish more people would experiment!

It struck me later that this process of experimenting – in particular, the spirit of experimenting – is what we all need as business owners, especially when it comes to what we do on-line. Whether it’s running webinars, creating a Facebook page, trying out Pinterest, doing something different in your blog (or even blogging at all!), or tweaking the subject of your e-mail newsletters, it’s worth trying different things to see what effect they have on your results.

Here are five reasons why it’s useful – in fact, essential – to experiment more in your business.

1. There are no hard-and-fast rules.

There really are no fixed rules about what will work on the Internet. Sure, there are some strong, time-tested principles (give in order to get, build your authority, don’t try to reach everybody, solve your target market’s problems, and so on), but the exact way you put them into practice varies for every business. So everything you do is an experiment anyway, and if you don’t keep experimenting you’re relying on hitting the jackpot on your very first try!

2. It’s all changing so fast.

Even if you have built a solid business already, the world is changing so fast that it might only take a tiny chink in your armour to expose a small weakness that quickly challenges your entire business model. It happened with Apple and the music industry, Amazon.com and the publishing industry, mobile computing and the PC industry, and any number of things affecting the speaking industry (webinars, 9/11, the Out of Office work style, and more).

If you’re lucky, your business will be shaken to the core by something big. If you’re unlucky, it will happen so slowly and insidiously that you won’t notice until it’s too late!

3. Your clients are expecting it.

Even if you aren’t experimenting, your clients are.

They aren’t spending hours discussing the 30% increase to your keynote fee; they are exploring ways to eliminate the annual conference altogether.

They aren’t thinking about your workshop fee; they are wondering how to make up for the lost productivity of their people attending the workshops.

They aren’t debating whether to pay business-class airfares for you; they are wondering whether they can slash all their travel budgets and use virtual meetings.

Even if they are thinking specifically about your services, they are wondering how to get the same results in other ways. So you’d better be thinking of these other ways as well!

4. Your competitors are already doing it.

Even if your clients aren’t aware of some of the changes happening around them, you can bet your competitors are. And it’s not necessarily the big, well-established competitors with deep pockets you need to worry about. Your biggest threat is probably going to come from smaller, more nimble, more agile competitors who are tapping into the power of the Internet to reach your clients with your message, and deliver (or at least, promise to deliver) the same results as you.

5. It’s easy to do.

One of the best things about experimenting on-line is that it’s easy to do – especially compared with a lot of off-line tactics. You don’t have to completely reinvent your business. You simply have to change a newsletter subject, try out a new app on your phone, conduct a quick survey on-line, run a private webinar for a small group, or answer a few LinkedIn questions in a group where your clients hang out.

So there really is no excuse! Remember that your clients and competitors are already doing things differently, so you just can’t afford not to experiment!

Annemarie Cross, of the Business Success Podcast, interviewed me recently about how the Internet has changed business.

We talked about:

• The right mindset to make money with the Internet
• How to use social media properly, without it taking up too much of your time
• The simple and free on-line formula that will help put you in front of your competition
• The four key sales triggers that convert Web site visitors into customers
• … and more!

Listen to the interview here.

I created this slide show to demonstrate the nine key principles of my new book Fast, Flat and Free:

Find out more and get the book here.

I’ve just published my book Fast, Flat and Free. The title is based on the three ways the Internet has changed the face of business:

• The world is faster: Customers, clients and audiences are more demanding. They expect a faster turnaround, faster responses to their requests, and faster resolution to problems.
• At the same time, we’re flattening hierarchies, barriers and structures: Your products can be built by a competitor in China; your services duplicated by a competitor using people from India; your customers are smarter, savvier and more sophisticated than ever before.
• Finally, what used to cost a lot is now free – or almost free: Google takes away your expertise; low-cost competitors drive down your prices; and passionate amateurs trump paid professionals every time.

The good news is that these changes are perfect for us as business owners – as long as we do something about it.

Unfortunately, most businesses don’t know the rules have changed. They think Internet marketing is about branding, hype, advertising, mass markets, needs, traffic, transactions, copywriting and better products and services.

It’s not. It’s about personality, value, reputation, niches, wants, communities, connections, buying frames and better experiences.

This book shows you what has changed, and helps you create a practical strategy to take advantage of the opportunities.

Find out more and buy the book here.

I’ve been critical in the past of Gerry Harvey’s complaints about on-line business cutting into his profits. But I’m equally admiring of him now for his new foray into the on-line world.

Download the MP3 File here