20
Oct
2010

Circle of Competence Revisted: What Business To Start?

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So, if you’re a janitor: you start a cleaning business, or a janitorial supply company. If you’re a mechanic you start your own shop: maybe specializing in some niche you see demand for. You don’t go from knowing everything there is to know about supply-chain management for hotels west of the Rockies and try your hand at forex trading.

Odds are, you’ll fail.

So what business do you start? You start within the business you know.

The following comes from my WebValueInvestor blog in a post I wrote about the fairly specialized vocation of “domaining” but I will repeat the main theme here, what follows is one of my favorite parables that I love retelling to people who ask me “what business should I go into?” or who sometimes look at me and think “Gee, maybe I should start an internet company…”

The best anecdote I can relate about who should or could succeed in any given field I learned from Tim Paulson and Joe Polish in their “Barracuda Marketing” course I bought a few years back. One of those guys was a penniless carpet cleaner, and he had an opportunity to go golfing one day with A Rich Man. He seized the opportunity because he was dying to ask The Rich Man the following question:

“What business should I go into?”

The Rich Man asked him, “What business are you in now?”

To which he replied that he was a carpet cleaner. The Rich Man then asked him “Are there any wealthy carpet cleaners?” and was told that yes, there were.

Then The Rich Man told him the most important piece of advice:

If that’s the case then it doesn’t matter what business you’re in. If you want to be rich and you’re not, the problem is YOU, not your line of business.

After that, the recipient of this tidbit reinvented himself and his carpet cleaning business. Within a few years, he was a wealthy carpet cleaner.

I think this is the single most important piece of advice you can give to anybody who seriously wants to improve his material circumstances. Sure, there are always those stories you hear: the bricklayer who starts daytrading his way to millions, the accountant who decides to flip houses instead. But those stories are outliers. For every success story like that, there’s about a hundred others who tried it and went bust.

Realistically, people don’t go from rags-to-riches by entering some alien terrain from the outside and start slamming home runs out of the ballpark. More often they do it by working within what they know best, usually by making some critical insight on how to do it better, or by leveraging one’s own experiences and knowledge within that field.

This is known as one’s “Circle of Competence”. Warren Buffet and Charlie Munger always stress that investment success occurs within that circle. Everything I’ve discussed in this post is meant to drive that point home. If  you approach any attempt to better your lot in life or achieve financial independence from within that circle, you vastly improve your odds.

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One response to “Circle of Competence Revisted: What Business To Start?”

  1. Coralie Waschkowski says:

    Great website and blog Mark… I am enjoying catching up of your blog…Cheers!

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