Kunal Shah on winning in India, second-order thinking, the philosophy of startups, and more

Kunal Shah on winning in India, second-order thinking, the philosophy of startups, and more

Kunal’s background (00:00:00)

  • CEOs of companies like Microsoft, Adobe, Alphabet, IBM, Alta Networks, and even Starbucks were all born in India and immigrated to the US.
  • Many successful CEOs have followed the "Dharma of the founders" principles, which involve sustaining and growing the company while staying true to its original vision.
  • India is different from other markets in terms of time perception and the concept of hourly salaries.
  • India is changing with founders being respected and unicorns being celebrated.
  • The current generation of entrepreneurs has the opportunity to build large and profitable companies.
  • Trust is essential in India, and people are more risk-averse compared to other markets.
  • Companies in India can quickly grow their user base but not their average revenue per user (ARPU).
  • The power of second-order thinking and contrarian takes.
  • The importance of staying curious and open-minded in product development.
  • Kunal shares stories of his failures and the lessons he learned from them.

The Delta 4 framework (00:04:22)

  • Kunal Shah introduced the Delta 4 framework, which suggests that when a product's efficiency delta is greater than or equal to four, it becomes irreversible, has a high tolerance for failure, and becomes a unique brag-worthy proposition (UBP).
  • Products with a Delta 4 or higher have a lower or even zero customer support requirement because people discover them through word-of-mouth rather than ads or performance marketing.
  • Recent advancements in artificial intelligence, particularly large language models (LLMs), are seen as examples of Delta 4 products due to their significant efficiency increase compared to traditional methods.
  • The Delta 4 framework can be applied to features, products, and businesses to assess their potential for success.
  • To determine if a product has Delta 4, one should ask users to rate the existing solution and the new solution on a scale of 1 to 10. If the new solution is not rated at least 4 points higher, it is unlikely to gain traction.

The success of Indian CEOs in the U.S. (00:11:00)

  • Indian immigrants in the US excel in business and technology due to their strong work ethic, appreciation for math and logic, and cultural emphasis on education and hard work.
  • Indian mythology and management principles offer insights into the success of Indian CEOs:
    • Lord Krishna embodies the entrepreneurial spirit, balancing high values with low obedience.
    • Rama represents obedience and adherence to principles.
    • Ravana and Duryodhana exemplify negative traits like low values and low obedience.
  • Successful CEOs uphold the Dharma of the founders, respecting the original principles and values of the company, and focusing on sustaining and growing the business rather than making drastic changes.
  • Indian entrepreneurs often embody the archetypes of Krishna and Rama, balancing values with obedience and adaptability, while successful founders prioritize the Dharma of their companies to ensure their values and principles remain intact over time.
  • Level five leadership, as described by Jim Collins, involves leaders who prioritize the business over their own egos and personal legacies.
  • Indian culture emphasizes long-term thinking and values-based relationships, contributing to the success and longevity of Indian startups.

Challenges and opportunities in India (00:19:55)

  • India has a high startup failure rate, estimated to be around 90%.
  • The risk of starting a company and failing is significant, and can have social consequences such as difficulty in finding a marriage partner.
  • India is changing, with more respect and recognition for founders and startups, but there is still a long way to go in terms of celebrating risk-takers.
  • In contrast, Portugal gives the highest status to risk-takers, such as explorers, who are buried in churches alongside royalty.

DAUs vs. ARPU in Indian markets (00:23:04)

  • ARPU (Average Revenue Per User) in India is low compared to DAUs (Daily Active Users) because of the country's low per capita income.
  • Global companies often prioritize user growth in India to boost their public market presence and valuations, despite low ARPUs.
  • Indian founders who copy the Western market by aiming for a few hundred million users make a mistake as they need to go abroad to find ARPUs to balance the equation.
  • Netflix's experience in India highlights the challenge of monetizing users due to the abundance of free data and content.
  • Investors should not treat 100 million users in India the same as 100 million users in other markets due to the lower ARPU.

The perception of time in India (00:25:50)

  • Indians are not accustomed to being paid hourly salaries.
  • Most Indians cannot state their income per hour, regardless of their job.
  • The concept of time is different in India due to the lack of hourly wages.
  • Indians may spend an hour to save $10 on a flight ticket, valuing the money more than the time.
  • The concept of efficiency is not present in many Indian languages.

The curse of focus in Asian markets (00:27:55)

  • Focus is a curse in Asian markets because you make very little per user.
  • Low trust markets, like those in developing nations, lack strong institutions to protect consumers from bad behavior by companies.
  • This concentration of trust leads to super apps and super companies that can do many things because people trust the brand.
  • Brand is exponentially more important in Indian markets.
  • The oldest brand in the world, Chavan Prash, was built in India and is still trusted today.
  • Many Indian businesses still have the name of the person behind them, as trust comes from people with a lot of trust and reputation.

Challenges and opportunities in India (continued) (00:30:33)

  • Low female participation in the labor force presents a challenge but also an opportunity to create new businesses and opportunities, especially with the rise of remote work.
  • Low per capita income can be addressed by leveraging AI to enhance productivity and create a more equal society.
  • The challenge of inefficiency can be turned into an opportunity if India embraces AI and becomes proficient in its use.
  • India's young demographic, with access to technology and smartphones, presents a great opportunity, but there is a need to learn from mistakes and avoid becoming discouraged by large-scale failures.
  • India is transitioning from a collectivist to an individualistic society, creating a unique blend of both.

Lessons learned from building CRED (00:33:23)

  • CRED's insight was to focus on the 25 million families in India with the highest per capita income and global approach.
  • Focusing on a specific customer category was crucial as opposed to trying to replicate the success of China in India.
  • Companies that excel at the initial stages of development may not naturally transition to success in later stages.
  • Founders need to evolve and adapt to the changing expectations and needs of the company as it grows.
  • Talent acquisition becomes more challenging as the company scales, and balancing the 0 to 1 DNA with the 10 to 100 growth phase is essential.
  • Adapting to significant market changes and avoiding becoming a slow company is a key challenge for founders.

Profit pools can provide valuable insights into the values of a country (00:36:40)

  • Profit pools of a country reflect its values, and copying another country's profit pool may not be successful due to differing cultural and societal factors.
  • India's profit pools differ from Western markets due to factors such as low divorce rates, arranged marriages, and lower female labor participation.
  • Patriarchal societies often have significant market capitalization in financial services rather than consumption.

Founders’ role in company growth (00:37:55)

  • Founders often start in control and micromanage, then delegate and empower as the company grows.
  • As things start to slow down, founders come back to play the "Shiva" role and take control again.
  • This cycle is inevitable and is seen in Indian mythology as the Brahma, Vishnu, Mahesh cycles.

Profitability and Indian business culture (00:39:55)

  • Most businesses in India are trading-based, focusing on buying low and selling high.
  • Building capital-intensive distribution, monetizing later, and prioritizing revenue growth over immediate profitability is unfamiliar in India.
  • The large losses reported by internet companies shock people who don't understand how internet businesses are built.
  • Venture capitalists provide capital to build distribution, unique product advantages, and brand before monetization.
  • India's tech companies make up a small percentage of the market capitalization compared to the US.
  • Indian entrepreneurs face immense trolling and doubt in their comments, especially from those who were once like them.

Advice for staying positive amid criticism (00:43:24)

  • Kunal Shah receives calls from founders who are dealing with hate and criticism.
  • He advises founders not to care about criticism from everyone, but to focus on feedback from those who have done better than them.
  • Taking feedback from everyone who doesn't understand the nuances of the business can be overwhelming and counterproductive.
  • Founders should be like noble gases with lower valencies, which are harder to get reactions from.

The promising market in India (00:44:41)

  • India is the most promising market for building a startup due to:
    • supportive digital public infrastructure
    • government support
    • a vibrant ecosystem
  • Despite challenges, India offers an extremely vibrant and crazy opportunity to learn and grow.
  • The speaker expresses a desire to learn from experienced product minds by observing their decision-making processes.
  • The speaker highlights the value of observing experts in action and suggests creating a "theater" where people can learn from the decision-making processes of successful entrepreneurs.
  • The speaker acknowledges the information asymmetry that exists and appreciates efforts to democratize knowledge, but believes there is still much to learn from the best in the industry.
  • The speaker expresses envy towards those who have the opportunity to work with the best and suggests that having a camera in meetings of successful entrepreneurs could be a valuable learning experience.

The power of curiosity (00:47:35)

  • Curiosity is important because it demonstrates a lack of pride in one's expertise and excitement when facing problems without solutions.
  • Curious people are secure enough to ask "dumb" questions and admit their lack of knowledge.
  • Curiosity fosters adaptation and learning, which are essential for growth.
  • Curiosity leads to the collection and connection of information, creating unique edges and information symmetry.
  • Curiosity is a key trait of successful companies and individuals.
  • Ability to reduce metabolism at will.
  • High conversion rate on every attempt to secure food.
  • Adaptability to environmental changes.

Who Kunal looks up to (00:52:59)

  • Kunal doesn't have a favorite person he looks up to, but he learns from everyone.
  • He asks himself and his key reports every month about the hardest problem they solved last month.
  • Extraordinary successful people have a lot more content to talk about every month because they are obsessed with making big displacements.
  • Kunal compares successful people to crocodiles who wait patiently for the best meal and have the deadliest bite.
  • He defines predators as those who burn the least amount of calories to earn the most amount of calories.
  • Kunal learns from people who are extraordinary at solving hard problems.
  • He believes that senior people should be the chief problem solvers.
  • He compares leaders to professional firefighters who are constantly putting out fires.

Kunal’s favorite sources of content (00:55:31)

  • Kunal's method of collecting information involves forming conjectures and then seeking proof to support or refute them.
  • He explores various fields, including chemistry, physics, human behavior, and universal principles, to find connections and patterns.
  • Kunal believes that learning one thing makes the brain more receptive to learning the next, making every experience a stepping stone to further knowledge.
  • Kunal has been exploring the second-order effects of AI on countries, jobs, and the rate of skill change.
  • He is also interested in the potential impact of lab-grown diamonds on the diamond industry, drawing parallels to the decline of pearls due to cultured pearl production.
  • Kunal speculates that lab-grown diamonds may initially create profit opportunities but ultimately diminish the status and value of diamonds.

Asking great questions (00:58:42)

  • Asking great questions can lead to success and unfair advantages.
  • People who make great choices often have difficulty explaining how they do it.
  • Second-order thinking is a powerful trait that can be developed through childhood experiences.
  • Playing strategy games and physical games can contribute to developing rigor and second-order thinking.
  • Encouraging children to ask "why" questions and explore history can help them develop second-order thinking.
  • Origin stories of inventions and the etymology of words can also foster second-order thinking.
  • It's important to not rely solely on AI for answers but to derive second-order insights from the information provided.

Contrarian corner: Wealth is nothing but storage of energy (01:02:54)

  • Wealth is not zero-sum because energy is not zero-sum.
  • Humans are the only species that have managed to convert all forms of energy to our advantage.
  • Wealth is an entropic complexity that will keep changing its form and shape.
  • Fighting against the physics of wealth is futile; it is better to accept it and take advantage of it.
  • Elon Musk's view of wealth as a database where everyone's wealth is just a row in the database.
  • The amount of wealth we can create for humans is disproportionate if we convert all the energy to our advantage.
  • Ants, bacteria, and humans have the largest biomass on this planet because they figured out how to make energy work to their advantage.

Failure corner (01:05:26)

  • Kunal Shah believes that entrepreneurs have a unique ability to forget about failures and turn them into lessons.
  • He emphasizes the importance of learning from other people's failures as well, as humans tend to believe they are special and immune to failure.
  • Shah shares that his own life started from a failure, as his family went through a severe financial crisis, and he had to start working from the age of 15.
  • He feels that many people are driven by the desire to escape the initial large failures they have experienced.

Closing thoughts: Share your learnings (01:08:57)

  • Kunal Shah encourages listeners from different fields of product to share their learnings without fearing judgment from their peers.
  • He believes that many people are learning only because others share their evolution and thoughts.
  • Shah emphasizes that sharing knowledge can contribute to the success of many people around the world.

Lightning round (01:09:38)

  • Kunal Shah recommends books on human behavior, evolutionary biology, and personal journeys, emphasizing diverse reading over repeated readings.
  • In interviews, he uses hypothetical "second-order thinking" questions to assess candidates' critical thinking skills, focusing on the cascading consequences of events.
  • Shah anticipates the release of "My Vision Pro" and an upcoming interview with Meta's CEO.
  • He believes products that demonstrate a wasteful use of resources can earn higher status, citing Apple as an example.
  • Shah emphasizes the importance of making the most of life by collecting meaningful experiences and stories, finding true motivation in overcoming challenges and personal growth.
  • To connect with Kunal Shah, individuals can search for him on social media platforms and tag him in interesting discoveries that provide moments of revelation and insight.

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