City endured a disappointing debut season under Guardiola, finishing third in the Premier League and being knocked out in the last 16 of the Champions League, but they have begun the new campaign in promising fashion.
The Citizens will go into Saturday's match against Watford having scored nine goals without reply in their last two games - against Liverpool and Feyenoord - and Guardiola believes that they are on the right path towards bridging the gap to Europe's elite.
"Last season we were not able to win many games against the top five, top six in the Premier League. We didn't win one game away in the Champions League. First of all I start with that, to believe. To believe we can play good football, but also that we can beat them, we can compete, even in the Champions League. With City, I feel now, we have good players that become a big team," he told reporters.
"Tomorrow, for example, is a big test for us. The big clubs win the games and that is the big difference to the big teams. In this situation, the teams I left at Barcelona, Bayern Munich, and the other big teams, like Madrid, and Juventus of Turin, in this kind of situation, a game every three days, they are there, they make a professional performance, score a goal in the right moment and win the game. That is the process we have to discover. When we are able to do that, then I will feel we have made a step forward to become a better team.
"I think every player believes, but sometimes in a bad situation or moment we were not able to overcome the situation. You have to do that. You have to have a strong mentality so when you see the players they have the personality to play on the big stages. A team is a good team when they have the quality to score goals, but also has other options.
"Last season we didn't have that, and that's why we suffered. That's why this season we are going to try more with Raz (Raheem Sterling) in the middle, with Leroy (Sane) more in the middle, the guys with the mentality to score goals to be more closer together, to try to score more goals."
City currently sit joint top of the Premier League table, having dropped just two points from their opening four games.