When I started a small business 25 years ago, I was completely incompetent. Fortunately, I was also completely unaware of my incompetence. If I had been more aware, I likely would not have started my business. After a couple of years, I looked back over all of the things that could have gone wrong. It was only then that I realized how thin was the ice I’d just skated across; how oblivious I had been to how easily I could have fallen through.

Recently, I ran across an “effect” that explains why I had the audacity to think I could be successful at starting and running a business: The Dunning-Kruger Effect. The effect is named for the two Cornell professors whose research and experimentation led to these two corollaries:

1. Illusory superiority (or, ignorance is bliss)

People who are relatively unskilled at something suffer an “illusory superiority”—mistakenly assessing their ability to be much higher than it really is. It’s how someone who has never played or coached football —even at the pee-wee level—can convince themselves they are experts in all facets of the NFL.

Dunning and Kruger attributed this bias to the inability of the unskilled to recognize or evaluate their own ineptitude. Or, as I’ve often experienced and explained it: We don’t know what we don’t know.

2. Underestimated competence (or, intelligence breeds fear)

On the other hand, highly skilled individuals may underestimate their relative competence and may erroneously assume that tasks which are easy for them are also easy for others. Or, as one discovers with experience and greater competence: We do know what we don’t know.

Dunning and Kruger postulated that the effect is the result of internal illusion in the unskilled and external misperception in the skilled: “The miscalibration of the incompetent stems from an error about the self, whereas the miscalibration of the highly competent stems from an error about others.”

Seeking a balance between ignorant bliss and intelligent fear

Here’s the dilemma that some people who would be successful owners of small businesses never find a way to solve: They know enough to recognize an opportunity but also know enough to recognize all the reasons why they shouldn’t pursue the opportunity.

While people who start businesses are often described as risk-takers, in reality, they are the ones who can balance the risks of being too intelligent and too ignorant.

After 25 years, I continue to err on one side or the other of that scale.

But to be a small business owner, that’s the price of admission.

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