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7 Reasons Why Smart People Fail as Entrepreneurs

Research by Entrepreneur Weekly, Small Business Development Center, Bradley University and the University of Tennessee found that the #1 reason why startups fail is incompetence. Yes, incompetence.

That definitely seems like we are stretching a bit.

For someone to take the plunge and start a company, he or she needs to be reasonably smart. Then, how is it that incompetence is the #1 reason for startups to fail?

The reason is that they are not talking about incompetence in an absolute sense; they are referring to the competence that is required to operate a business. When you look at it that way, we are all incompetent in a new subject when we start on it. Everybody has to be a beginner before becoming an expert at something.

So, the real question therefore is: Will that someone put in everything that is required to move from conscious incompetence to unconscious competence in the domain of entrepreneurship – and how long will they take to get there?

This article is the result of watching several startups up close and personal for more than a decade and having conversations with dozens of entrepreneurs that I am close to.

Here we go:

#1 Knowledge arbitrage has its limits

I know this now after paying the price for not knowing it earlier in my life. If smartness were the only criteria to succeed in a startup, I had lots of it when I started my first company more than 20 years ago.

I did not think I was smart, but I had proof to demonstrate it.

We have touched upon this a bit before, but the point it’s worth repeating.

A few highlights of my own life before I jumped into entrepreneurship:

  • In class X, I ranked 20th for my state (out of 450,000+ students).
  • In class XII, I ranked 2nd in my state (out of 150,000+ students).
  • In the common entrance test for admissions to engineering colleges, I ranked 6th in the state.
  • In Engineering (electronics and communication), I ranked 4th for the university.

There were achievements outside the academic world:

  • At the age of 13, I published my first book and was awarded as the youngest writer of Karnataka state.
  • Before I was 17, I had published six books (four novels, a collection of poems and a book on mathematics).
  • From age 13-16, I worked as a journalist for a local newspaper and literally wrote hundreds of articles on wide-ranging topics.

So, I had the academic smarts and the literary smarts at a young age; so in theory, I should have been able to crack the entrepreneurship game. Sadly, I failed miserably. At that time, it was a shock, surprise, and disbelief for me and for people around me.

After several years and a lot of reflection, I know that there is no reason for shock, surprise or disbelief. Everything happened the way it should have happened. Honestly, I was not ready for the game of entrepreneurship. While I had demonstrated proof of smartness in two different areas (academic and literary), it was not easy to arbitrage the learning from those areas to make them practical insights that I could apply in my entrepreneurial journey.

The game was different. It was different enough that it had reached the limits of knowledge arbitrage. There was nothing in my experience that I could draw upon that would let me excel in the new world.

For starters, both academic and literary worlds could be termed as “solo sports” and the entrepreneurial world definitely is a “team sport;” so the game has to be different.

2. Support structure may be out of context

Entrepreneurship not only requires a strong team, but also requires a strong external support team of partners, advisors, board members and service providers. These people who are thinking of supporting you are investing their time, energy, effort and mindshare, which are all limited in quantity. Unless you show real promise with proof, investing in your enterprise is an opportunity cost for them.

This gets even more complicated if you are smart. If the startup fails, it may seem like there was no problem with you, but there must have been some problem with people around you who were supporting you. So, rather than coming to support you with open arms, you might get lukewarm support from the sidelines. If you start making progress, they can jump into the arcade; and if you start failing, they can just disappear from the sidelines.

Also, just because someone was supporting you in your area of smartness does not mean that person automatically will support you in another area where you have not proven yourself.

To complicate the matter, you might also come across as “not coachable,” and that alone will repel a lot of people who are capable and willing to help.

3. Entitlement generally leads to disappointment

I have seen this time and again where someone super smart comes up with an idea and he or she is so sure of it that it borders entitlement. To add to that, the person has an entourage around to say how smart he or she is and why success is almost guaranteed. That false sense of support is something that actually hurts in the long run, but for now, it is only strengthening the sense of entitlement.

The negative side effects of entitlement mentality are many. Here is a short list:

  • Taking people for granted
  • Not being fully prepared to face situations
  • Making too many ungrounded assumptions (including the one where you think others don’t know much)
  • Taking too much credit
  • Not giving enough credit to others

In general, I think there is only one guaranteed outcome for entitlement — disappointment that comes with a time lag.

4. Creativity alone won’t pay the bills

You may be smart and creative and can come up with a dozen options on how to handle the current situation, but ideas alone won’t pay the bills or move the needle.

The fact about a startup, in general, is that resources (time, money, connections, etc.) are limited and, until product-market fit is established, it’s going to continue to be the case. Creative options for solving problems all take time; and the more options you have, the more it takes to analyze the best option to pursue. There is also the chance of getting lost in the analysis-paralysis.

You will sooner rather than later realize that coming up with ideas is not the problem; but executing the ideas that you come up with takes a lot more work, a lot more money and, sadly, a lot more time.


Ideas have no real roadblocks in your mind. Whatever you imagine will unfold brilliantly the way you imagined it.
In real life, there are roadblocks everywhere, and it takes a whole new level of skill and influence to get your team to buy into the ideas that you want to execute.

5. Unable to make the market fall in love with your idea

My friend Navin Nagiah, CEO of DNN Software says, “Most entrepreneurs have passion and they fall in love with an idea. But not all of them have the necessary skills to make the market fall in love with that idea.”

I agree. Having passion is a good start and you must have it if you are signing up to go on an entrepreneurial path. There is also no question about the belief and conviction you must have on your idea. But that alone will rarely make your market fall in love with your idea.

What the marketplace needs is a story that it can resonate with. If you (or someone in your team) can’t tell a compelling story, you can rarely have a great start. You may be smart in your own field, but that won’t make you a smart storyteller. You need to invest in that craft.

The problem can get complex as you hang on to your original ideas in the name of persistence. Your past label as a super-smart person is now a liability. If you are that smart, you have to get things right and then it’s just a matter of time until the world sees your point of view. You want to keep going until that happens.

6. Lacking the beginner’s mind and not practicing effectuation

First, a definition of the beginner’s mind (from Wikipedia):

Shoshin is a concept in Zen Buddhism meaning “beginner’s mind.” It refers to having an attitude of openness, eagerness and lack of preconceptions when studying a subject, even when studying at an advanced level, just as a beginner in that subject would. The term is especially used in the study of Zen Buddhism and Japanese martial arts.

Now, we will look at effectuation:

Effectuation, according to Darden Professor Saras Sarasvathy, is “a logic of thinking, discovered through scientific research, used by expert entrepreneurs to build successful ventures.” In the insightful paper, “What makes entrepreneurs entrepreneurial,” Prof.
Saraswathy outlines his research on the major difference between the mindset of the entrepreneurs and the mindset of others.

Quick Summary: Others will identify a goal and look for resources to help them reach the goal. Entrepreneurs identify all the resources they have and look for goals to reach with those resources. This kind of thinking is called effectuation.

Combine a beginner’s mind with effectuation, and you are ready to pivot to make a business successful. Remove the beginner’s mind and effectual thinking, and you will be sticking to your guns as if it’s your life.

Many smart people unfortunately lack both of the above, and that makes it hard to digest “real” change when it is needed for the startup to survive and thrive.

My personal belief is that having a beginner’s mind and practicing effectuation is golden, even outside of your startup life. It’s a great way to live.

7. Not willing to be vulnerable

If you behave as if everything is in “full control,” I doubt that anyone will go out of the way to offer help. On the other hand, if you showcase your vulnerability, you can expect a helping hand or two. Don’t take my word for it — you can do it right after reading this and you will see the results. It’s almost like magic.

You might be thinking that exposing your vulnerability will make you look weak. In fact, it requires a lot of strength to expose your vulnerability. You have to have an extremely healthy self-esteem to be bold and tell the outside world that you are after all another human being and are vulnerable in more than one area of life.

The fact of life is that everyone that you met yesterday, everyone that you meet today and everyone that you will meet tomorrow are all vulnerable in one way or the other. Some people show this and get good help, but many more just try to hide it and fight like a lone ranger.

You and I know this: nobody can read your mind, now or later. If you demand help, you may not get it; and if you don’t ask for help, they may not know that you need help. But, if you keep giving and building an emotional bank balance and show your vulnerability, there is a good chance that you will get help and more.

You need lots of good help if you want to thrive in the entrepreneurial world!

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