Delta 4 theory from Kunal Shah

When we make an existing process more efficient by a Delta of 4, we unlock a pot of gold - says Kunal Shah (founder of CRED & Freecharge).

Let’s understand the interesting theory called Delta 4 coined by Kunal Shah that helps to assess at what point the newly created efficiency will be so good that people won’t be going back to previous habits? This is a framework for startups to self-assess whether an idea going to be a winning business.

Your product should solve some inefficiency in the way things are currently done. So, instead of finding problems to solve, find inefficiencies.

The Method

Let’s take example 2 states, State A (Current way of doing things) and state B (Proposed way of doing things)

Here, state A is booking tickets at the railway station, and state B is IRCTC (Online Rail Ticketing system in India).

Let’s access by rating the amount of efficiency it creates from a scale of 1-10 (rate state A - old behavior vs state B - new behavior). If the difference in efficiency is >=4, then a new way is a good enough idea. 

In this example, Kunal says that customers do not go back to booking through a ticketing counter in most cases. The Delta in this case is more than four.

"And every time you hit a Delta of four, you've hit the perfect efficiency scale and create wealth”.

Trails of Delta 4 Behaviours:

• 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 would not go back to regular points and shoot digital cameras. Or go back to regular taxis (Meru) after using an Uber or an Ola or booking tickets and paying bills online.

• Universal Bragworthy Proposition > Universal Selling Proposition

While USP is a unique selling proposition, UBP is a unique brag-worthy proposition. Citing the example of TrueCaller, Kunal says that the TrueCaller app wasn't downloaded because of ads or any marketing, it was all word-of-mouth. "Everyone is trying to get you to move away from the inefficiency and those who have, brag about it to others who haven't," adds Kunal.

• 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

If you take the example of buying shirts online v/s buying shirts offline, you see that it hasn't created a Delta 4, because people are still wary of it and many don't see buying offline as being inefficient, and this, therefore, doesn't unlock a pot of gold," says Kunal.

What people do to increase Delta 4 (none of these last longer and lead to wealth erosion):

1. Cashback and discounts 
2. 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

Friction for moving to Delta 4

• Affordability (Flights v/s Trains)
• Readiness (Smartphones/Internet speeds)
• Learnings effort (English/Tally/SAP)
• Configurations (Domestic Maid/OS)
• Collective Participation (WhatsApp, Phone #)
• Branded Lanes / Verbs (“Google something…” / “Xero a copy… / Book Ola/Uber...”)

Faking Delta 4

• Influencers
• Piggy Back another delta 4
• Fake Inefficiencies (FMCG) (Nobody cared about dandruff or wrinkles 100 years ago)

Finally, Kunel says:

"When you get an idea, don't build the product. If you build it, you have a vested interest. Ask five unknown people and founders what they think of the idea. Get brutally honest answers and opinions. Don't ask friends and family. When I started FreeCharge, I, being a philosophy graduate, built a rough version of the product, and asked people if they would use it. Only when there was a 95 percent confirmation, did I go ahead and build it. Build products to solve an inefficiency."

Reference