How Perplexity Have Achieved Such Mammoth Growth

Credit and Thanks: 
Based on insights from 20VC with Harry Stebbings.

Deep Dive

Raman Malik's journey from an MBA program to becoming the Head of Growth at Perplexity is a testament to the power of hands-on experience and the willingness to pivot. He left his MBA program early, realizing that the real learning would come from engaging directly with the challenges of building a startup. This decision underscores a critical lesson for founders: while formal education can provide valuable insights, the true growth often occurs in the trenches of entrepreneurship. Founders should encourage their teams to embrace experimentation and learn from failures, fostering a culture that values initiative and resilience. By prioritizing real-world experience over theoretical knowledge, founders can cultivate a team that is agile and responsive to market demands.

Transitioning from a founder to a team member at Perplexity presented Malik with unique challenges. He described the emotional toll of shutting down his startup, which left him with a bruised ego and a newfound appreciation for the structure of a team environment. This shift required him to focus narrowly on driving growth, a stark contrast to the multifaceted responsibilities he had as a founder. For founders, this highlights the importance of adaptability and the need to align personal goals with the broader objectives of the organization. Embracing a mindset of continuous learning and collaboration can help founders navigate similar transitions, whether they are stepping into new roles or scaling their businesses.

Malik defines the role of a Head of Growth as a bridge between product and marketing, emphasizing the importance of understanding the user funnel from acquisition to monetization. He explained that growth is not merely about filling the top of the funnel with new users; it also involves nurturing those users to become retained and eventually monetized. Founders should take this to heart by ensuring that their growth strategies encompass the entire user journey. By fostering collaboration between product and marketing teams, founders can create a cohesive approach that drives sustainable growth.

Malik suggests that early signs of retention, such as achieving a 30% retention rate within the first few months, can justify the investment in a dedicated growth team. He cautions that this decision should be tailored to the specific context of the company, including its stage and resources. Founders should be vigilant in monitoring retention metrics and be prepared to invest in growth initiatives when the data indicates a viable opportunity.

Malik argues that growth encompasses both micro-optimizations and bold, high-risk initiatives. He believes that while micro-optimizations are often underrated, they can significantly impact overall user engagement. For instance, a small increase in retention can elevate the entire user base's activity levels. However, he also emphasizes the necessity of taking big swings, such as launching new features or marketing campaigns, to drive substantial growth. Founders should adopt a balanced strategy that incorporates both approaches, allowing for incremental improvements while also pursuing transformative ideas that can redefine their market position.

A/B testing plays a crucial role in Malik's growth strategy, enabling him to understand user behavior and optimize the product effectively. He highlights the importance of well-scoped tests that yield actionable insights, cautioning against poorly designed experiments that waste time and resources. Founders should prioritize data-driven decision-making and ensure that their testing frameworks are robust enough to provide meaningful results.

Malik emphasizes that while metrics are essential for tracking progress, they should not overshadow the user experience. He advises founders to adopt a holistic approach that considers both quantitative and qualitative feedback. By focusing on delivering genuine value to users, founders can build lasting relationships that drive retention and advocacy.

Malik's insights into partner programs reveal the potential for leveraging existing networks to drive growth. He notes that partnerships can significantly enhance distribution, particularly when they align with the company's values and target audience. Founders should actively seek out strategic partnerships that can amplify their reach and create mutually beneficial relationships. By fostering collaboration with other organizations, founders can tap into new markets and drive user acquisition more effectively.

Reflecting on his mistakes in acquisition, Malik shares his initial enthusiasm for influencer marketing, which ultimately fell short due to the complexity of managing individual relationships and messaging. This experience serves as a cautionary tale for founders: while exploring new channels is essential, it is equally important to assess the feasibility and scalability of those strategies. Founders should prioritize channels that align with their resources and capabilities, ensuring that their acquisition efforts are sustainable and effective.

Good retention, according to Malik, is characterized by a stabilized retention curve, with a target of 45% retention by month six. He emphasizes the importance of understanding user behavior and identifying milestone metrics that correlate with deeper retention. Founders should focus on creating value for their users early in their journey, ensuring that they understand the product's benefits and are motivated to return. By prioritizing retention, founders can cultivate a loyal user base that drives long-term success.

The biggest needle-mover for Perplexity has been the ability to shift audience targeting and improve cross-device usage, which significantly enhances user engagement and retention. By focusing on specific high-quality cohorts and ensuring users interact with the product across multiple devices, they have seen substantial improvements in retention metrics.

In terms of CAC-to-LTV metrics, Malik emphasizes the importance of understanding these ratios as the company matures. Initially, the focus was on activation and retention rates rather than immediate monetization, allowing the team to optimize user experience before scaling paid acquisition efforts. Founders should prioritize these metrics to ensure that their growth strategies are sustainable and that they are not overspending on customer acquisition without a clear path to profitability.

Perplexity engages in advertising primarily to test different value propositions and reach new audiences, particularly through platforms like TikTok. However, Malik notes that they are cautious with paid acquisition, as it can often lead to low-quality users who do not retain. Founders should evaluate the effectiveness of their advertising strategies and consider whether the investment is yielding incremental growth or merely pulling forward users who would have engaged organically.

Brand marketing is viewed as essential for building awareness, with the belief that potential users need to hear about a product multiple times before trying it. Malik highlights the importance of creating memorable experiences that resonate with users, rather than just pushing product features. Founders should invest in brand marketing strategies that foster genuine connections with their audience, as this can lead to organic growth through word-of-mouth referrals.

Malik suggests that community-driven growth could be a better channel for Perplexity, leveraging power users to share their experiences and drive organic growth on campuses and within niche communities. Founders should actively seek to empower their most engaged users to become advocates for the brand, as this can create a strong network effect that enhances user acquisition.

When hiring for growth teams, Malik emphasizes the importance of finding individuals who can balance marketing and product insights. He shares that the right first hire depends on the current team makeup and the specific needs of the company. Founders should prioritize candidates who demonstrate a strong understanding of both growth marketing and product development, as this dual expertise can drive more effective growth strategies.

In interviews, Malik focuses on candidates' past experiences, particularly their ability to navigate challenges and learn from failures. He values those who can demonstrate a deep understanding of growth metrics and show initiative in problem-solving. Founders should adopt a similar approach in their hiring processes, seeking individuals who can contribute positively to the company culture and drive results.

Common hiring mistakes include rushing the process and not thoroughly assessing cultural fit. Malik advises taking the time to find candidates who align with the team's values and can contribute positively to the company culture. Founders should be mindful of the long-term implications of their hiring decisions, ensuring that they build a cohesive and effective team that can adapt and thrive in a dynamic environment.

Actionable Insights

• Encourage team members to take ownership of projects and experiment with new ideas to foster a culture of innovation.

• Monitor retention metrics closely and invest in strategies that enhance user engagement early in the customer journey.

• Explore strategic partnerships to amplify reach and drive user acquisition through established networks.

• Implement A/B testing with clear objectives to gain actionable insights and refine product offerings.

• Focus on building a strong brand presence, as repeated exposure can significantly influence user trial and adoption.

Mind Map

Key Quote

"If you're not first, it literally just means your only other option is to just be a lot better than everyone else."

Future Trends & Predictions

Looking ahead, the trends in growth strategies highlight a significant shift towards community-driven marketing and organic growth, particularly in the AI sector. As companies face increasing costs and saturation in traditional paid channels, the emphasis on building authentic relationships with users and leveraging word-of-mouth becomes paramount. This aligns with the current landscape where consumers are increasingly skeptical of overt advertising, seeking genuine connections with brands that resonate with their values. The focus on retention and user experience will likely shape the future of growth strategies, as businesses strive to create lasting engagement rather than fleeting interactions.

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Jiten-One Cerebral

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