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The Circle of Competence: How to Increase Your Effectiveness and Productivity

Warren Buffet, arguably the most successful investor of all time, gave this advice in a Chairman’s Letter to the shareholders of Berkshire Hathaway Inc, written in 1996:

“You 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.”

This became known in the business world as “The Circle of Competence” theory, and it has been employed by many since the letter was written almost 20 years ago. He stated that you don’t have to be an expert on everything, or even a lot of things – just what’s within your area of knowledge.

Buffet was speaking about one’s knowledge in order to make sound investment decisions, but this same principle can be applied to opportunity in general.

If we honestly evaluate ourselves, we all have areas in which we have gained knowledge and areas in which we haven’t. Areas in which we have gained knowledge and in which we operate effectively go inside the circle of competence. Areas in which we don’t go on the outside.

Within every field, there is a given list of things you would need to know in order to become successful. For things you need that fall outside of your circle of competence, you have two choices: you can seek out the knowledge and know-how necessary to be able to pull that thing into your circle, or you can accomplish it by delegating that responsibility to someone else who has whatever that is in his/her circle already. The option you choose may depend on several factors, such as the time and/or money involved, the resources available, etc.

You exercise these options everyday: you order food out because you don’t cook or you don’t have the time or energy to make it yourself; you go to a lesson where someone else gives you information to help you get better; you watch YouTube videos to figure out how to make something – you do these things because you either don’t know yet how to do them, you want to get better at something you’ve already started, or you don’t have the time to do them yourself.

There is a gray area though, seemingly between the inside and the outside of the circle, and this part should be addressed: these are the areas where we think we know something, or think we should know, but really don’t. This things should be considered part of the outside of the circle. “Sort of know” or “should know” do not make it into your Circle of Competence (yet!).

This is a tough area: if you think you know something and really don’t, you may not realize that you need work in that given area. If you think you should already know but don’t, you may be avoiding working on this out of shame or embarrassment.

One of the biggest time wasters involves milling around in this gray area without guidance (or ignoring it completely). If time is a concern of yours (and it seems everyone complains of wanting for more time), then your ability to create a solid plan is essential. If your plan is to delegate, your job is to find someone who is already good at what you need. Ask friends, colleagues, and mentors if they know someone to whom they can refer you. Perform searches, find the best match for you, and contact that person or company.

If your plan is to acquire the know-how to do it yourself, this will take more time. You will need to find a trustworthy source that can teach you what you want to know, and you must ensure that you make the time necessary to acquire the skill set you need to bring that item into your circle.

Unfortunately, the latter is often begun with good intentions that never come to fruition (that pesky time thing!). To avoid this, give yourself a deadline. If you don’t have it done yourself by the deadline, it’s time to delegate. Delegating can come in the form of handing the project over completely or receiving step-by-step guidance. Regardless of how the help works, you’re no longer going at it alone. This ensures that you don’t get in hamster wheel mode, where all the intentions are present and yet nothing moves forward. That’s a good recipe for anxiety, frustration, and a bunch of work that isn’t really moving you forward.

So let the assessment begin! Create your own Circle of Competence, start making a plan, and watch your circle grow. 🙂

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