I graduated this past weekend, and I plan to work on my startup full-time now. When faced with the barrage of questions asking "So, do you have a job?", I force myself to explain my startup and its business model such that it sounds like success will inevitably come.* (Which, we all know, isn't certain.) But now I've built up the pressure for myself; everyone knows that I plan to dive in.
* I generally approach that question as follows:
Them: "So, what do you plan on doing now?"
Me: "Make millions." (Cheeky grin.)
Them: "Ah." (generally laughter)
Me: "Yeah. I'm working on XXX...." (explain startup)
Them: "Oh, cool, that sounds like it might actually work."Embracing your smallness will keep you out of trouble.
Heck, your reaction to yourself will correspond to your deportment. This is why a central tenet of self-help is self-respect.
Thinking of this another way, most people are social creatures and have a certain tendency to "follow the crowd". If "the crowd" at a particular moment is you, and if you are demeaning or dismissive of yourself, they will pick up and respond to the message.
Sometimes -- often -- socialization not about some "absolute" of behavior. It is all about context, and about relative values defined within that context. Don't blemish your own reputation (or "brand", as they say these days), either by being a fake or by disgorging all its flaws. People aren't too interested in the flaws, unless it's something they can and need to learn from. And the situations and time for such sharing and learning are a limited part of overall social activity.
EDIT: Upon rereading, I guess I may have digressed a bit from the business / start-up context of the original question. But there, too, people are most interested in how you can solve their problems and make their lives better. Don't let the challenges you face overshadow your ability to do this for them.
Lying sucks energy and adds to mental clutter. Always be honest. It's hard enough to muster the creative focus you need to build something good without worrying about how you're "fronting." Better to hone your pitch so you can genuinely sell your idea to discerning customers.
Many businesses do profit from "appearing bigger and more successful" than they actually are. I call Bernie Madoff to the witness stand. Some smoke-and-mirrors is to be expected in industry but too many companies are flat-out "designing trust." Time is precious and I would rather spend mine earning customers' respect. The startups I admire are trying to be as tastefully transparent as possible.