We’re used each day to deal with products or services that become an essential part of our daily lives. From websites like Facebook and Google. Entertainment services like YouTube and Netflix. Products like Apple’s iPhones and Mac computers.
Anything around us is driven by a few companies that make up for most of our experiences. Yet we know a lot about those products and services, as we use them on a daily basis.
But we know very few about how those companies work, what their back-end looks like, how they monetize, what keeps them going, and what makes them successful, what is their motivation and why they “act” the way they do.
In the past years, I’ve been studying any business as a hobby, until I turned this passion into the FourWeekMBA. I’ve been quite surprised to find out how a few people know the way the companies that most influence their lives work.
A few realize why those companies’ algorithms or organizations are structured the way they are. And how it all ties out to their bottom line and the motivation of their founders, shareholders and a core community around it.
That insight made me want to dig deeper and deeper to dissect more and more companies, as I realized I could add a lot of value to more and more people. The first step to unlock this understanding is to grasp the difference between front-end and back-end business.
Back-end business vs. front-end business
There is a part of any business that anyone can see. Usually, this is the customer-facing side of a company. Everything that deals with customers, from its segments, channels relationship and how a value proposition and perception about a product or service is delivered.
While this side is important, there is an even more critical part, the back-end business. The back-end business is anything hidden from the eyes of customers. Things like the key activities and resources an organization has in place to make its product and service valuable in the eyes of its customers. Other operational activities like inventory and manufacturing management, accounting and finance, distribution, IT and engineering, and human resources are all part of back-end business. This also implies the cost structure and partnership in place that makes the company able to thrive in the marketplace. And the way a business monetizes its resources.
Why is back-end business the key to unlock insights
Front-end business is the first step to unlocking a clear understanding of the companies that most influence our lives. However, if you want to understand what motivates those companies, you need to open the hood and look under it. You’ll figure out things that you would have never imagined.
Do you know that Facebook makes 99% of its money from advertising? Or that Netflix spends billions of dollars on content production? That Google is still mostly owned by its two co-founders and Amazon is still mostly owned by its founder? And that Amazon lower its margins on purpose to accelerate growth?
All those things you can know if you start looking at the business back-end. That is why on FourWeekMBA I devoted most of my focus on business modeling, business, marketing, and distribution strategies.
- Invisible Business Dynamics: Despite using products and services daily, most people have limited knowledge about how the companies behind them operate. Understanding the inner workings of these companies can provide valuable insights into their motivations, strategies, and success.
- Front-End vs. Back-End Business: Businesses have a customer-facing side (front-end) and a hidden operational side (back-end). The front-end deals with customer interaction, segments, channels, and value perception. The back-end encompasses crucial activities, resources, operational management, partnerships, cost structures, monetization strategies, and more.
- Importance of Back-End Business: While the front-end provides a surface-level understanding of a company, the back-end is the key to unlocking deeper insights. By examining the back-end, one can discover unexpected details about a company’s motivations and strategies.
- Examples of Back-End Insights: Exploring the back-end reveals intriguing facts, such as Google’s significant partnership expenses to maintain user engagement, Facebook’s heavy reliance on advertising revenue, Netflix’s massive content production expenditure, the ownership distribution in companies like Google and Amazon, and Amazon’s deliberate margin reduction for growth acceleration.
- Benefits of Understanding Back-End: Gaining a comprehensive understanding of a company’s back-end enables better decision-making for executives and entrepreneurs. It reveals critical aspects that influence a company’s trajectory and success.
FourWeekMBA Business Toolbox
Resources to master the back-end of any business:
- Successful Types of Business Models You Need to Know
- What Is a Business Model Canvas? Business Model Canvas Explained
- Blitzscaling Business Model Innovation Canvas In A Nutshell
- What Is a Value Proposition? Value Proposition Canvas Explained
- What Is a Lean Startup Canvas? Lean Startup Canvas Explained
- How to Write a One-Page Business Plan
- How to Build a Great Business Plan According to Peter Thiel
- How To Create A Business Model
- What Is Business Model Innovation And Why It Matters
- What Is Blitzscaling And Why It Matters
- Business Model Vs. Business Plan: When And How To Use Them
- The Five Key Factors That Lead To Successful Tech Startups
- Business Model Tools for Small Businesses and Startups
- What Is The Difference Between A Business Model And A Business Strategy?