Bill Harris: Don’t Invest Like an Entrepreneur!
As someone who has spent his career playing the dual role of entrepreneur and financial guru, Bill Harris is the first to caution that launching a startup is a much different game than making a solid investment.
The founder of Personal Capital, and former CEO of Intuit and PayPal, famously warned that entrepreneurs make “terrible investors.” Instead of falling in love with the rare tale of the “the genius gambler” whose all-in bet on a risky company paid off, Harris stresses the need for a cool head and a diversified portfolio.
His advocacy for a disciplined, long-term investment plan seems in conflict with the one-day-at-a-time mindset that helped earn entrepreneurs the capital to invest in the first place. Yet he says people who are successful in business need to heed the same advice as everyone else, and stop thinking like an entrepreneur when planning your family’s financial future.
FreeEnterprise.com spoke with Harris about his advice for entrepreneurs, as well as the average investor’s need to think beyond an immediate payoff when it comes to financial growth and opportunity:
As an entrepreneur yourself, you understand more than most the challenges that face startup founders and venture capitalists. As an expert on wealth management, what advice would you give to entrepreneurs specifically when it comes to planning for a secure future?
Diversify. Despite your enthusiasm for your business, don’t put all of your family’s financial assets in that basket. What that often means for you as the entrepreneur is raising more outside money, and giving away more of your company than you might want. You can’t afford to put your family’s future at risk.
You've said that "entrepreneurs make terrible investors." Why is that, and how can they become better at it?
Entrepreneurs think they’re invincible. If they didn’t, they wouldn’t start these crazy things! What it boils down to is that they typically have an unrealistic assessment of risk. The essence of investing — as opposed to building — is spreading and controlling risk. The entrepreneurial activity is the opposite — it’s the concentration and acceptance of risk.
Would you say that nation’s economy as a whole would be in significantly better shape if individuals were better prepared to manage their own finances?
Essentially the economy is the aggregate of all the individuals in the country. When individual finances are in bad shape, the economy is in bad shape. Shockingly and unfortunately, about half of the households in this country are living month to month.
What is a direct example of how personal finance management affects our future?
We’ve put the responsibility [for retirement] without tools training or motivation to make it work on individuals. It’s a looming problem that people don’t think about because it’s a ways out. We’ve added more complexity to already complex lives.
How does Personal Capital make managing your finances easier?
Without a plan you can’t make the future better.
What we do is we give people the ability to see their entire financial life in one place. The single biggest problem that households face is chaos. All the tools are available to everyone, including a 12-year-old with a savings account.
We can’t wait for the next generation. We have to teach this generation to manage their financial lives.