Delta-4 is a theory coined by Kunal Shah, the founder of CRED App and former founder of Freecharge(Acquired by Snapdeal for $450M) on ‘How to evaluate your startup idea?’. It can be used as a framework for self-assessment for evaluating ideas or startups to see whether they are on a path towards creating wealth. This blog post is a summary of some research and notes prepared by me while watching Kunal’s talk at TechSparks Summit. If you prefer watching a video(it’s 30 min long!) instead of reading this post, click here.
Efficiency Scoring of an Idea
Since human beings are hacking evolution, all inefficient things are in the past and efficient things are in the future. Wealth is generated when businesses help humans from point A to point B in a more efficient manner. This theory can be used to test an idea or an existing business. The efficiency score of a business solution or approach can be represented on a scale of 1-10 by the amount of efficiency it creates. For example, booking tickets via the IRCTC app(Indian Railways official booking platform) can be given a score of 8 or 9, and going to the railway station can be given a score of 2 or 3.
The Delta-4 Theory
“Every time the Delta of Efficiency is greater than 4, you unlock the pot of gold”Kunal Shah, Founder of CRED
According to Kunal, if the delta of the efficiencies is greater than 4, the business or the solution will unlock the pot of gold. Once the business or the product achieves the delta > 4, it becomes unstoppable and becomes a wealth creation machine. Examples include Uber (Allowing to book cabs easily and efficiently), Google (Helping to search the world of the web faster), Truecaller (Helping to identify an unknown call received), Whatsapp (Making text communication faster, efficient and free), and more.
Traits of Delta-4
Once Delta 4 has been established, it’s impossible for people to go back to the previous state of inefficiency. A person who has booked a flight/train ticket online will never go back to the station or airport to book a ticket again as delta 4 has been already achieved.
Universal Bragworthy Position (UBP) > Universal Selling Point(USP)
Delta-4 products have UBP so high that it grows organically without the need for any aggressive marketing. One example given by Kunal is that of Truecaller which became popular without any advertisement. The product was so good that people were talking about it and it organically grew itself.
Once Delta 4 is established, people will have a high tolerance towards the product. For example even if Uber is down for an hour or if the ride got canceled due to some error, people continue to use Uber. This is contrary to the businesses which haven’t achieved delta 4. For example, while purchasing clothes online, if it goes wrong one time say due to misfit, people tend to abandon buying clothes online completely and prefer going back to the brick and mortar store.
Exceptions for Delta-4
Even if Delta4 is achieved, if the technology or product is not affordable, wealth cannot be unlocked. For example, people travel in train in India even though flights are way efficient since flights are comparatively expensive considering the average Indian household’s income.
Readiness of the Market
If a supporting ecosystem is not present in a market, wealth will not be created even when delta 4 is achieved. An example is introducing a cab booking app in a country where smartphones are not popular. Delta-4 may be achieved by a business in such markets where SMS-based cab bookings are offered until smartphones become popular.
Efforts to Learn
If the new business or approach involves a difficult or time-consuming learning curve, wealth cannot be unlocked. One example would be a new software as a replacement for Tally software used by accountants. Since there is a new learning curve, the product may not be successful.
More configurations people have done to an existing product, more would be the friction to adopt a new product. People tend to change operating systems(OS) very little since adapting to a new OS and making those micro-configurations would be time-consuming and tedious.
If an existing product has already a large user base like Whatsapp, it will be hard to create momentum for a new product that has better features.
Branded Lanes or Verbs
When the state changed from A to B and a brand or verb has been created, it is very difficult to move people from the current state. One example would be phrases like, “Whatsapp me!” or “Google it!”. People are so used to these products that even if a better solution arrives, it will be difficult to onboard them to the new solution.
FMCG companies often create fake inefficiencies to achieve Delta-4 state. For instance, nobody cared about dandruff or being fairer 50-60 years ago. FMCG companies created this notion to promote their anti-dandruff shampoos.
Delta-4 can be faked by using influencers in the market. If an influencer, say a sports star or a media personality pretends to follow a product, people tend to adopt the product. Also if a bigger brand uses a service or a product, the smaller brands tend to follow the trend.
Delta-4 can also be achieved by piggybacking another Delta-4 product. For instance, Anti-fog glass cleaning liquid will sell as long as people continue to buy spectacles. It will survive until the Laser treatment for blindness achieves Delta-4 state ad people abandon spectacles.
How to Evaluate your Idea?
Delta-4 Theory can be used by entrepreneurs while formulating ideas for startups or even existing products. It acts as a framework to self-evaluate whether the product or solutions is creating extraordinary value and will create wealth in the future. Problems are a subset of inefficiencies. The theory can also be used to reverse-engineer existing inefficiencies to find a problem and thereby a product.
If you’re looking to evaluate an idea or our existing business, I believe that this article will help you in the process. Please reach out to me if you’re trying to analyze your product or business using this theory. I would love to feature you in a post!
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