Should you stick to what you know, or is it wiser to broaden your abilities? Some people may tell you to only take on projects that fall within your circle of competence, while others will advise you to get out of your comfort zone. Who’s right?
The circle of competence model states that everyone has an area, or circle, of expertise. However, the circle of objective competence may be surrounded by a larger circle of subjective, and often over-inflated, belief in your ability. Your circle of competence represents what you really know, versus what you think you know.
Discovering your circle of competence
A circle of competence is a mental model that helps mitigate the risk of failure associated with overconfidence by having a realistic view of your strengths. The term was first coined by Warren Buffett, one of the world’s most successful financial investors.
Buffett advised: “Know your circle of competence, and stick within it. The size of that circle is not very important; knowing its boundaries, however, is vital.”
Alongside his business partner Charlie Munger, Warren Buffett found success in only making financial investments in sectors that he had a comprehensive grasp of. In this way, Buffett avoided overconfidence in his knowledge or abilities, and instead relied on objective competence.
By mapping his circle of competence, he reduced the risk associated with making poor investment decisions in sectors he had little experience of. Buffett has since attributed his overwhelming financial success to adhering to this mental model.
To determine your circle of competence, you have to understand where your true competence lies, without allowing subjective beliefs to create undue assurance in your abilities. To determine the breadth of your circle of competence, you need to have an honest look at your background, training, qualifications, or personal familiarity in a subject.
This self-reflection process will allow you to discover the areas in which you have deep, well-rooted knowledge and experience, versus the ones where you only have basic or surface-level knowledge.
Stepping outside of your circle of competence
Buffett and Munger believe that staying within your circle of competence is vital for success. According to them, understanding your strengths and avoiding unfamiliar areas is an effective way to mitigate risk. If a challenge falls outside of your circle of competence, you can minimise the risk of failure by declining that opportunity. Sticking with what you know could also give you an edge on your competitors, and prevent you from making mistakes.
Chief investment analysts Rusmin Ang and Victor Chng write: “Remaining within one’s circle confers a number of benefits, such as an unfair information advantage, the narrowing of available options, and the reduction of poor decision making.”
However, there may be times when stepping outside of your circle of competence can be a good idea. Although there may be risks associated, new discoveries can be fostered when experimental and innovative approaches are employed. Or, as some may say, you can’t make an omelette without breaking a few eggs. They explain: “The potential of an entrepreneur or innovator is much more correlated with higher tolerance for uncertainty than it is with their field of study.”
In other words, if your goal is to avoid risk, you should stick to your circle of competence; however, if your goal is to innovate, you will be better off stepping outside of your circle so you can come up with non-obvious solutions.
Although some very accomplished businessmen suggest that success lies in never stepping outside the boundaries of your circle of competence, this may stunt your creativity and ability to discover new ideas.
How to make the most of your circle of competence
To take advantage of your circle of competence is to find a balance between honestly acknowledging your capabilities, and strategically striving to expand your knowledge and horizons.
The Pareto Principle states that 80% of all output results from just 20% all inputs. Spend 80% of your time working from within your circle of competence, and 20% expanding your boundaries and exploring new territories that may feel less comfortable. Here are few steps you can take to make the most of your circle of competence:
1. Ensure predictable progress. Define the limits of your circle of competence to ensure progress. By spending 80% of your time in your area of expertise, you are likely to make steady progress that will benefit your career and personal life. The time spent working within your circle of competence is akin to creating a safety net for yourself.
2. Push your boundaries. The remaining 20% of your time can be spent exploring new, exciting areas that may have a higher potential for risk. Acquire new skills, set ambitious goals, offer your help on a project you are unfamiliar with. The time spent working outside of your circle of competence is when your performance has the chance to improve in an exponential fashion.
3. Reassess your circle of competence. By leaving your comfort zone for just one-fifth of the time, there is potential for learning, growth, and behavioural change. Your objective circle may therefore grow to encompass your newly developed expertise. Make sure to regularly reassess your circle of competence and to incorporate this knowledge into your decision-making process. As a result of your drive to grow, some professional or personal decisions may now be less risky.
The circle of competence model serves to indicate a person’s true strengths and expertise, while preventing overconfidence and related risk-taking behaviours. Remember that your circle does not need to be big for you to be successful. You just need to know its boundaries so you can be smart about when to stick within it, and when to step outside of it.
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