Circle of Competence

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Circle of Competence

Business Impact Solutions
Published by Stephen Dann in Growth · 17 April 2023
Tags: WarrenBuffet
Warren Buffett's Circle of Competence is a concept he uses to describe the areas of business where he has a deep understanding and expertise. The idea is that by staying within his circle of competence, he is more likely to make informed investment decisions and avoid costly mistakes. The Circle of Competence can be applied to a wide range of situations where it is crucial to understand where we are genuinely an expert ("knowledgeable & competent"), a well intentioned amateur ("think we know & risky"), have no knowledge ("ignorant & dangerous")

When applying the Circle of Competence to business growth, there are a few key areas to consider:

Identify your circle of competence
Start by taking stock of your knowledge, skills, and experience. What industries, sectors, or types of businesses do you have a deep understanding of? What are your strengths and weaknesses? By identifying your circle of competence, you can focus your attention on the areas where you are most likely to succeed.

Evaluate business opportunities
Once you have a clear understanding of your circle of competence, you can start evaluating potential business opportunities. Look for businesses that operate in industries or sectors that you know well, and that align with your strengths and interests.

Conduct thorough research
Before making any investment or growth decisions, conduct thorough research on the businesses you are considering. Look at their financial statements, market trends, competitive landscape, and any other relevant data. This will help you make informed decisions and avoid costly mistakes.

Focus on long-term growth
As you evaluate business opportunities, focus on long-term growth rather than short-term gains. Look for businesses with sustainable competitive advantages, strong management teams, and a track record of success. By investing in businesses that have the potential to grow and thrive over the long term, you can maximize your returns and minimize your risks.

Stay within your circle of competence
Remember to stay within your circle of competence. Avoid investing in businesses or industries that you don't understand, as this can lead to costly mistakes. By focusing on what you know best, you can make informed decisions and achieve long-term success.

Know when you have stepped into your Circle of Incompetence
Often experts in one sphere naturally assume they will also be experts in adjacent spheres. It is tempting to assume that becasue you are leading technical expert that you will also be an expert in marketing that technology.

Hire people who bring in competence that you lack
Understanding the gaps in your competence should lead you to delibertaely hiring people who cover those gaps leaving you uncluttered to focus on where you add the most value.

Avoid hiring people the same as you
Frequently leadership teams are unbalanced as they contain too many of a very similar personality type - creative people recruit other creatives, technical experts recruit of ther technical expert like themselves. High performing teams require genuine diversity in skills, competence and personality.







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