Circle of Competence
I first came across this phrase when I was reading a book on Warren Buffett many years ago. This is from a 1996 letter Buffett wrote to his shareholders: “What an investor needs is the ability to correctly evaluate selected businesses. Note that word ‘selected’: You don’t have to be an expert on every company, or even many. You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital.”
Coffee&Junk expands on the idea:
Each of us, through experience or study, has built up useful knowledge or a set of useful skills in certain areas of the world. I’m a designer, so my circle of competence is design. If you are a developer, your circle of competence would most likely be frontend or backend development.
Similarly, for Sachin Tendulkar, it would be cricket. For Roger Federer, tennis. For Amitabh Bachchan, it would be acting. And for Pandit Ravi Shankar, it would be Indian classical music.
Think of the circle of competence like a small circle within a big circle. The bigger circle is what you think you know—where you are not really an expert, and the smaller circle inside the bigger one is what you really know—where you are an expert, and where nobody can beat you.
Shane Parish adds: “If you want to improve your odds of success in life and business, then define the perimeter of your circle of competence, and operate inside. Over time, work to expand that circle but never fool yourself about where it stands today, and never be afraid to say “I don’t know.””
In my life, I have tried to stay within my circle of competence – which is primarily understanding and applying tech to solve problems. IndiaWorld used the Internet to deliver news and information to Indians globally. Netcore offers a martech stack for B2C companies to connect with their customers. Even in Niti Digital (my political venture for the 2014 Modi campaign), I leveraged tech in much of what we did. Even in tech, it is much narrower – software. That is the world I have known for the past 25 years.
Entrepreneurs need to work on identifying and then expanding their circle of competence. Which is the one area that you can be better in than most others? As a CEO managing a business, you will need to be a fox – good at many things. But as an entrepreneur setting up a new business, you will need to make sure you are a hedgehog – doing one thing better than everyone else.
Tomorrow: My Proficorn Way (Part 32)