As a consultant, I am often faced with managing the fragmented attention of my clients. The grass is always greener, and the new shiny thing syndromes are hard at work, particularly in the minds of the stressed owners of an SME, looking hard for an easier way.
Somehow, they must manage their limited resources of time, money, capability, operational capacity, and expertise, insulating themselves against the pull of the siren song of the silver bullet.
There is no substitute for the focussed application of all available resources on a market niche of some sort where there is a competitive advantage that can be defended. The niche may be as local as the best plumber close to your home, or as broad as a revolutionary application of technology to the world market, the logic remains consistent.
The late Charlie Munger had as part of his wardrobe of mental models one he called ‘The circle of competence.’ He credits this idea with much of the success he and Warren Buffett have had in Berkshire Hathaway.
In summary, he assesses all opportunities presented by determining if Berkshire Hathaway has a greater level of competence in the domain within which the opportunity lives than anyone else. The closer to the edge of the circle of competence, the less interesting it is, simply because there are others who know more about the drivers of long-term profitability than he does, and therefore in the long run, he is unlikely to win.
Many years ago, while working for Cerebos, I launched a breakfast cereal into test market in South Australia. It was a bridge between muesli, where Cerebos was a major brand in a small segment with Cerola (now disappeared from shelves) and the standard breakfast cereals, Wheat Bix, corn flakes and rice bubbles. It was a genuinely different product, offering a ‘bridge’ between the ‘tree hugger’ image of muesli, and the sugar laden three products that at that time stood alone in the market.
The launch was extremely successful, at first. Three months after our launch Kelloggs countered with a look-a-like product, ‘Just right’ and blew us away with the weight of advertising, power of the Kelloggs brand, and in store merchandising resources.
While it seemed that our new product, ‘Light and Crunchy’ was a logical and consumer centric expression of the trends in the marketplace, it was a step outside the ‘circle of competence’ of Cerebos. We did not have any competitive advantage in the general cereal market that could be leveraged after Kelloggs rubbed out the modest first mover advantage. It fell right in the middle of the ‘what you think you know’ circle of competence.
We did everything right, the longevity of ‘Just Right’ is evidence of that, but we did not sufficiently understand the drivers of our new competitor, Kelloggs, and the determination they brought to wiping out an interloper in what they saw as ‘their’ market. We were not sufficiently competent to be successful.
That insight came at considerable cost.
