🎯 The Circle of Competence: How to Lead Smarter by Getting Honest With Yourself

Why knowing what you DON'T know is your greatest leadership skill

As a leader, you’re expected to have answers…

• about strategy.

• people.

• metrics.

• markets.

The list is endless.

But what I have realized over 20+ years in corporate leadership is this: you don’t have to be good at everything. You just need to get honest about where you actually are.

In this issue, we will discuss the Circle of Competence, a mental model that was made famous by Warren Buffett and Charlie Munger. You will learn how to use this simple mental model to transform how you lead.

Here’s what we will discuss:

• Part 1: Understanding the Circle of Competence

  • What Is the Circle of Competence?

  • How the Circle of Competence Works

  • Why It Matters for Leadership

• Part 2: Applying the Circle of Competence in Leadership

  • Mapping Your Circle of Competence

  • Real-Life Leadership Scenario

  • The Circle of Competence Worksheet

• Part 3: Going from Here

  • Common Pitfalls

  • Recommended Resources

  • Final Thoughts

Let’s begin by understanding the model.

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Part 1: Understanding the Circle of Competence

In this section, we’ll unpack what the Circle of Competence is, how it works, and why it’s one of the most underrated leadership tools out there.

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What Is the Circle of Competence?

Your Circle of Competence is the set of things you truly understand, where your knowledge and experience are deep enough to make good decisions.

It’s not about how many years you’ve worked or how confidently you speak. It’s about what you’ve actually mastered, and where your instincts are reliable.

Charlie Munger and Warren Buffett made this concept famous, and here’s a short video where Charlie talks about it:

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How the Circle of Competence Works

Think of your Circle of Competence like a target:

• At the center is your zone of deep expertise: areas where you’ve made real decisions, seen outcomes, and spent years refining.

• Around that is the edge: topics you’re exposed to, maybe interested in, but where you lack depth or confidence.

• Beyond that is unknown territory: areas that, if you were to start exploring, you would be mostly shooting in the dark and guessing your way through.

The Circle of Competence

You lead differently depending on where you are.

• Inside the circle: You can trust your gut, and move with clarity and confidence.

• At the edge: You slow down, explore, and bring others in for guidance.

• Outside the circle: You admit the unknown, and either defer, delegate or choose to learn your way through.

This model isn’t static.

You can expand your circle, but only through deliberate effort: real learning, applied experience, feedback, and iteration.

You can’t fake it.

Most leaders overestimate the size of their circle, but the smart ones don’t. They stay aware of their boundaries, continue to expand the circle over time, and lead successfully.

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Why It Matters for Leadership

When you lead, the cost of bluffing is high. When you make bad decisions, they get magnified and negatively impact your teams or the business or both.

Using the Circle of Competence

But when you’re honest about your strengths and your limits, you earn real trust from your team and stakeholders. You start making better, more informed decisions. You create space for others to lead too.

That’s what self-aware leadership looks like.

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Part 2: Applying the Circle of Competence in Leadership

In this section, you’ll learn how to apply the Circle of Competence in your role as a leader.

• We’ll start by mapping your current Circle of Competence using a simple 3-step system.

• We will then discuss a real-world example of mapping the model to a typical role in management.

• Finally, we will make it real with the Circle of Competence Worksheet, which will help you build your muscle in applying and using this framework in your leadership role.

👉🏼 If you’d like to see how these tools, scenarios and worksheets fit together as part of a broader practice system, you can explore the ⚙️ The Good Boss Practitioner space - where leaders apply these frameworks in real situations.

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Mapping Your Circle of Competence

Before you can lead smarter, you need to get honest about where you’re strong, and where you’re not.

Here’s a simple 3-step system to help you map your Circle of Competence: