Kunal Shah's Delta-4 Theory
Updated: May 25, 2020
At what point will the newly created efficiency be so good that people won't go back to previous habits? This is a framework for founders to self assess whether the idea is going to work, whether it will create wealth or destroy wealth.
In this talk Kunal explores this theory, all the way back in 2016. Since this talk, he successfully exited Freecharge and started CRED. This is not the first time he has openly spoken about this theory, but this is the more detailed version out of the rest. This theory draws inspiration from Biology but has been built by Kunal Shah. He previously mentioned it in other talks at INK talks and Founding Fuel Interview
What are the implications of this theory?
The people who create new efficiencies with Δ4 (Delta 4) or more will find wealth behind it.
A business will be able to create wealth with little to no advertising
The product will grow and sell by itself (similar to Truecaller, Freecharge, and more). You will not struggle with ad spends.
When two Delta 1 companies compete, Google and FB make mone, not eh founders
Product or service will become a verb - Example"Why don't you Google It" or "Let's uber it to the party" etc.
What goods or services were more efficient in the past? It's an impossible question to answer. All the efficient stuff is in the future and all the inefficient stuff is in the past. This is unique to humans.
If you were to ask any other creature on earth, you will realize, things are all the same. They will have to wait for evolution to kick in to see more efficiency, for instance, stronger legs, sharper teeth etc.
Humans are hacking evolution by creating goods and services that are more efficient and giving it to consumers.
There are millions of lanes that consumers see every day: (B2B, B2C problems, etc.)
How do I get fit faster
Make money faster
Get more marks faster etc.
Every time humans are in the previous state A and you can help them cross that into a more efficient state B, you unlock 'pot of gold'. How do you know you are building a company that will unlock the pot of gold? Identify if you are creating a more efficient system. Some examples of efficiency scoring are at 7:48s.
If the difference in efficiency score from the previous state to the new state is more than 4, you will create wealth.
Traits of Delta 4 Behaviors:
Irreversible: This is irreversible behavior, you will not go back to the original state. For instance: Once smartphones with cameras were introduced to people, they will not go back to a regular point and shoot digital cameras. Or go back to regular taxis (Meru) after using an Uber or an Ola.
Universal Bragworthy Proposition > Universal Selling Proposition For instance: How Truecaller found a way into people's hands because of its UBP - people showing off to their friends how almost magically they could put a name to any number that exists)
High Tolerance: Even though some experiences in the new Delta 4 may be broken, you will still not go back to old ways of doing it. For instance: If the IRCTC website is not working, you will still not go back to the train station to book the tickets.
If you don't have a startup that is Δ4 it will be very hard to create wealth.
What people do to increase Delta 4 (none of these last longer and lead to wealth erosion):
Cashback and discounts
Artificially increase new delta
Why Laundry Startups didn't take off: Getting a maid is easier than using a laundry app. Delta 4 is not achieved. This is where wealth is eroded. Just by copying an idea from the west, without India's context, ideas will not work.
Discounts used in Delta 4 creates market share, but in Delta 1 it erodes value.
These are all the spaces where Δ4 will not be enough:
Affordability: If affordability is a constraint. For example, flights v/s trains. Even though flights are a lot more efficient than trains, but because of the cost constraints to the user, it will not be enough.
Readiness: If the supporting mechanisms are not in place. For example, if we have created an Uber-like app in a country with no smartphones, the product will not work.
Learning Efforts: If learning efforts are very high. For example, English is a hard language to learn. If someone has spent years learning the language and building vocabulary, even if a new language comes with Δ4, they will not move to a new language, because of high effort to learn another language.
Configurations: The more micro configurations or customizations. (investments)have been done, the more difficult it would be to adapt to new systems. For example A maid in the house will have built a very customized service and getting a new one and 'training' her with the same customer service will take a lot of work.
Collective Participation: When delta of the new behavior increases by the participation of humanity. For example in the case of Whatsapp (think network effects), it will be very difficult to create a better product and still move people.
Branded Lanes/verbs: Whenever the state is changing from A to B and it is becoming branded, it is very hard to beat this. For instance "why don't you google this". Bing will face tough competition against it.
Can you fake Delta 4?
Yes. With the power of marketing and branding you can indeed fake delta 4. It feels like a delta 4, but it isn't.
How could we fake this?
Influencers: Go to #1 influencer in the field and the rest of the people will follow. It's always better to influence big and higher influencers. For example: if a big brand comes onboard for your product, the smaller brand will follow.
Piggyback another Delta 4: If you have built a product with Delta 4 product, you can build another product and piggyback it with the original product. For example Glasses are Delta 4 for people who can not see, if you sell glass cleaning liquid with glasses, it will sell. But when Lasik becomes affordable and less scary, people will completely move towards Lasik because of the higher Delta.
Fake Inefficiencies(FMCG): You can fake an inefficiency and that can create Delta 4. For example Nobody cared about dandruff 50 years ago. FMCG companies created a fake inefficiency and started selling shampoos.
Brilliant marketers don't compete in the same delta products, they create their own highway. They create new inefficiencies.
Once you experience Delta 4, you will tend to become strong advocates for it and continue to brag about it. We will want the entire humanity to move from old behavior to new behavior.
Without sugarcoating ask yourself if your product or service is truly delta 4.
Always aim for creating a delta 4.
Only when you have done extensive research and validated idea for delta 4 with all stakeholders, start into building the product.
Don't fall in love with your idea, work at it without attachment. When you start building something, you fall in love with the idea. And we start feeling that it is delta 4.
Don't fail fast, plan better.
Try to find and solve inefficiencies. Problems are subsets for inefficiency.
Try to create this winner takes all recipe: Delta 4 + Network effects.
What do you think about this theory? Where have you seen this play? I would love to know your thoughts in the comments.
P.S: Are you curious about what does it take to identify Delta 4 problems? I'm thinking of doing some research and thinking of writing an extensive article on it. Would you like to learn more about it? Let me know in the comments or drop me an email.
Until next time, keep growing! - Rishi Gaurav Bhatnagar