“You have to stick to what I call your circle of competence. You have to know what you understand and what you don’t understand. It’s not terribly important how big the circle is. But it’s terribly important that you know where the perimeter is.” – Warren Buffet
What is the Circle of Competence?
Warren Buffet and his business partner Charlie Munger will not invest in a business in which they do not have a thorough understanding of its operations. Their strategy is to select an area where they know significantly more than the average investor, and focus their efforts on that area. This area is their circle of competence. However, I think this philosophy extends outside of investing.
Where do you have a strategic advantage over the people you are competing with? This could be at work, school, sports or even while you are searching for a job.
The job hunt is the perfect example of where you need to identify advantages that lie in your circle of competence and exploit them. Most people spend the majority of their time adjusting their resume and then applying to hundreds of jobs online. When you apply online, a computer is simply scanning your resume for specific keywords. This lumps you into the masses and provides no strategic advantage. In this particular situation, your greatest advantage is going to be the relationships that you have developed (or will develop). Your goal should be to find a job through your connections before it is even listed. This limits competition and gives you a tremendous advantage over the thousands of other people looking for a similar opportunity.
“We’d rather deal with what we understand. Why should we want to play a competitive game in a field where we have no advantages – maybe a disadvantage – instead of playing in a field where we have a clear advantage? Each of you will have to figure out where your talent lies. And you’ll have to use your advantages. But if you try to succeed in what you’re worst at, you’re going to have a very lousy career. I can almost guarantee it. To do otherwise, you’d have to buy a winning lottery ticket or get very lucky somewhere else.” – Charles Munger
Comfort Zone vs. Circle of Competence:
There is a difference between your circle of competence and your comfort zone. Just because you feel comfortable in an area doesn’t mean you have a strategic advantage there. In fact, you are more likely to develop a strategic advantage outside your comfort zone. If you feel uncomfortable doing something, then the majority of other people do also. Therefore, there is less competition for you to develop an advantage. The more often you do what you are afraid of, the further you are separating yourself from the masses. Attack what scares you and widen your circle of competence.
How to Identify your Circle:
Each situation is going to be different. Throughout your life you have developed a specific set of skills, knowledge and relationships that can all be used to give you an advantage. It is your job to analyze these attributes and see how they fit together to comprise your circle of competence. Here are five ways to identify key attributes in your circle.
1) Ask 5 friends or family members what your 3 greatest strengths are.
2) Strengths Tests: (Google Strengths Tests to find multiple quizzes – Ex. Strength Finder 2.0)
3) Where do your skills overlap with your passion?
4) When are you in Flow? (Description of Flow)
5) What do people request your help with?
Check out this list.
As Mr. Buffett said above, “it not terribly important how big the circle is.” The true advantage comes from recognizing what lies in your circle and putting it to use. I find it very interesting how often people accept the normal process and never take the time to identify a strategic advantage.
Give yourself the best opportunity for success. Stop trying to beat people at their game and identify your own. What advantages do you have (or can develop) in your particular situation that will bring you success?