Most Entrepreneurs Overoptimistic about Success

Following Bad Business Myths Lead Most Entrepreneurs to Make Poor Choices

Most entrepreneurs will be dreamy eyed and misguided, selecting unexceptional business models in less profitable industries. And most will fail. According to an angel investor, Scott Shane, professor of Entrepreneurial Studies at Case Western Reserve University, here are some of the top things you can do to raise your chances of success.

• Choose a high-profit industry. According to Shane's studies, the average entrepreneur will pick low-profit industries and unprofitable businesses that are more likely to fail. A rapidly growing industry is a good sign. Shane says food and retail have some of the highest failures. Information technology and B2B have some of the highest success rates.

• Choose a business that is difficult to copy. The biggest entrepreneur myth is that a start-up's success depends on entrepreneurial talent and psychological make-up rather than the robustness of the business that they choose. Successful entrepreneurs select a business that is difficult to copy within a rapidly growing industry.

• Prepare a business plan. It significantly increases your chances of success. Most entrepreneurs think that a business plan is just to show investors in order to obtain funding, but it is actually more important for the entrepreneur. A business plan forces them to analyze the market, see the opportunity to be found in complaining customers and provide the discipline of financial controls.

• Work full-time in your business to maximize your chance of success. Studies show that businesses survive and grow more if you work in your business full-time.

Other busted myths?

Fact: Compared to men, women are downright allergic to starting their own business (only seven percent of women are self-employed).

Fact: The typical entrepreneur works more hours but earns less money than if he worked for someone else.

Fact: Seventy-one percent of new businesses will fail within 10 years.

To hear an interview of Dr. Shane, click here (9:51 min).

Read a book review or buy The Illusions of Entrepreneurship: The Costly Myths That Entrepreneurs, Investors and Policy Makers Live By.

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Scott Shane is A. Malachi Mixon III Professor of Entrepreneurial Studies at Case Western Reserve University. For years he has been an angel investor of start-up companies. He is the author of seven books, the latest of which is Illusions of Entrepreneurship: The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By.