"But watching the games we have to accept the reality that we were not good enough. We did not play bad, we played some real good moments but we sometimes made mistakes and in this competition you cannot do it.

"The reality is, every player and manager, not just here, has to dream with high expectations. We did not perform at the level you have to perform to get through. We have to accept it with humility.

"When we accept this, it's the best way to improve and to accept the new challenge. We will start from zero again knowing we have to improve."

A VAR controversy, a shocking miss from Raheem Sterling and a clanger from Ederson all played a role in the 2-1 defeat to Lyon, though fingers were also pointed at the manager's tactical changes.

Guardiola, brought in by City four years ago to scratch the Champions League itch and now in the final 12 months of his contract, insists his side are not far away.

"I have the feeling we are close," he said. "Every season when I analyse when we go out, I have the feeling we are close.

"At the same time, we make mistakes that make you feel we don't deserve to go through. I don't think it is mental. It is about desire and avoiding mistakes.

"There are little gaps and we have to solve it. When you don't solve it, it's because you don't deserve it."

City were without Kevin De Bruyne, Gabriel Jesus, Aymeric Laporte and Benjamin Mendy for Saturday's 1-0 win over Arsenal, but Guardiola said the situation was slowly improving.

"Oleksandr Zinchenko is back and other players are back," he said. "Ilkay Gundogan, Bernardo Silva and Joao Cancelo are in good condition. We expect Benjamin Mendy back soon so the team will grow."

Without Laporte, summer signings Nathan Ake and Ruben Dias started alongside each other in City's defence at the weekend and put in an impressive display as Dias earned his manager's praise.

Guardiola was keen to play down comparisons with Vincent Kompany, but in calling him a "leader" he hinted that City may now have the long-term replacement for their former captain.

The 23-year-old Portugal defender demurred when asked if he had designs on the armband, but expressed confidence he could handle the pressure of performing on Europe's biggest stage with City.

"I had pressure when I was young," he said. "I had pressure when I got to Benfica's first team. I got pressure when I went to the national team and I have pressure now. It is part of football. The higher you go the more pressure you have. I like it. It's all good.

"My mentality is to be as complete as I can be in every part of the game...

"In every team, every single player needs to be a leader in himself. I've worked my entire life to be a leader of myself. I know what I want and work to get it. Everything else comes naturally."