Get All Access for $5/mo

Success Is Its Own Worst Enemy When entrepreneurs are successful at one thing, they inevitably assume they can replicate that success again and again … until they can't.

By Steve Tobak Edited by Dan Bova

Opinions expressed by Entrepreneur contributors are their own.


If you're not familiar with the Peter Principle, you must be new to the working world. It's a brilliant management concept with far-reaching implications, not to mention a hilariously clever bestselling book by the same name.

The idea, developed by Laurence J. Peter back in the hippie era, is that everyone in an organizational hierarchy inevitably reaches their level of incompetence. The reason is simple. People who are good at their job keep getting promoted until they reach a level that exceeds their capability. And that's where they remain.

Evidence of the Peter Principle is everywhere. We've all come across incompetent managers and wondered how the heck they ended up in positions of authority. It's logical to assume they were once good at something, and indeed, they were. So they were promoted until they were in way over their heads.

As for all the dysfunctional executives that have no business running anything, let alone a corporation or an organization with so much at stake, they got to the top exactly the same way. That also explains why all those incompetent managers never get fired. Their bosses are clueless, just like they are.

While Peter's eponymous principle presents a fascinating theory of why all hierarchies are destined for disaster, it also applies in the entrepreneurial world, where organizations are quite a bit flatter.

Related: 15 Business Tips Every Entrepreneur Should Know

When entrepreneurs are successful at one thing, they inevitably assume they can replicate that success again and again … until they can't. That's how entrepreneurs so often manage to fool themselves – and their investors, too – into believing they have some sort of recipe for success when, in fact, they don't.

For example, Urban Outfitters co-founder and CEO Richard Hayne recently announced his apparel company had acquired the Vetri pizza restaurant chain. No, you didn't read that wrong. Jeans, t-shirts, hoodies … pizza. I'm sure that makes perfect sense in some bizzaro universe, but not in this one.

Granted, Steve Jobs scored with Apple and Pixar, Elon Musk is tackling space travel, and Richard Branson's Virgin Group is in dozens of businesses. But they're rare exceptions, not the rule. For every true serial entrepreneur, there are dozens if not hundreds who attempt to diversify way beyond their expertise into completely unrelated businesses and ultimately flop.

I wouldn't be the least bit surprised if that same mechanism is behind Google's restructuring as a holding company called Alphabet, with co-founder Larry Page at the helm. That would certainly explain the search giant's crazy diversification into everything from robotics and neural networks to hot-air balloons and car insurance.

The question is, what makes Page think that anti-aging research is a natural extension of software? I'm thinking it's the Peter Principle. I guess time will tell.

Related: Busting the 6 Myths of Entrepreneurship

That's also the only logical explanation for how Enron CEO Jeff Skilling and Adelphia chief John Rigas defrauded shareholders out of billions and cost thousands of employees their jobs and pensions. They doctored the books a little and, when that worked, they did it some more. And they kept doing it until they got caught.

How else do you explain how Bernie Ebbers – a former milkman, gym teacher, and motel owner – somehow managed to turn a regional long-distance service provider into a telecom giant, WorldCom? He just kept acquiring companies until federal regulators put a stop to it and the house of cards came tumbling down.

In every case, things worked until they didn't. That's the Peter Principle.

So how can entrepreneurs avoid what might appear to be an inevitable fate? By remembering three things:

1. Meritocracy is great, but don't promote people to management level positions based solely on their functional expertise. A good engineer won't necessarily make a good engineering manager. Interview people you're considering for promotion as if you were interviewing them from outside the company.

2. Reach for the stars but, when it comes to expanding and diversifying, don't forget to keep your feet planted firmly on the ground. Just because you have a successful apparel business doesn't mean you'll make a good restaurateur. If there's no synergy with your existing business and you don't have the DNA for it, think twice.

3. Have a little humility. Remember that you're just a flesh-and-blood person like everyone else. The rules do apply to you. And there's way more you don't know than you do know. Don't live in denial of your own limitations. And remember that success is its own worst enemy.

Related: Fear Alone Can Never Hurt You

Steve Tobak

Author of Real Leaders Don't Follow

Steve Tobak is a management consultant, columnist, former senior executive, and author of Real Leaders Don’t Follow: Being Extraordinary in the Age of the Entrepreneur (Entrepreneur Press, October 2015). Tobak runs Silicon Valley-based Invisor Consulting and blogs at, where you can contact him and learn more.

Want to be an Entrepreneur Leadership Network contributor? Apply now to join.

Editor's Pick


ChatGPT is Becoming More Human-Like. Here's How The Tool is Getting Smarter at Replicating Your Voice, Brand and Personality.

AI can be instrumental in building your brand and boosting awareness, but the right approach is critical. A custom GPT delivers tailored collateral based on your ethos, personality and unique positioning factors.

Business News

Is the AI Industry Consolidating? Hugging Face CEO Says More AI Entrepreneurs Are Looking to Be Acquired

Clément Delangue, the CEO of Hugging Face, a $4.5 billion startup, says he gets at least 10 acquisition requests a week and it's "increased quite a lot."

Growing a Business

He Immigrated to the U.S. and Got a Job at McDonald's — Then His Aversion to Being 'Too Comfortable' Led to a Fast-Growing Company That's Hard to Miss

Voyo Popovic launched his moving and storage company in 2018 — and he's been innovating in the industry ever since.

Business News

You Can Now Apply to Renew Your U.S. Passport Online — But There's a Catch

The U.S. State Department officially launched the beta program this week.

Business Ideas

63 Small Business Ideas to Start in 2024

We put together a list of the best, most profitable small business ideas for entrepreneurs to pursue in 2024.

Business News

Apple Reportedly Isn't Paying OpenAI to Use ChatGPT in iPhones

The next big iPhone update brings ChatGPT directly to Apple devices.