Understanding the 5 Levels of Business Problems (That Small Companies Face)

Business can feel like a battle against infinite opponents.

When you solve one problem in your business, another one will pop up.

Guaranteed.

Fortunately, not all of those problems actually matter.

I like to say, “Your goal is to find problems worth keeping.”

There are layers.

The sub-problems that matter are directly connected to the macro-level business problem you're facing.

Here are the 5 macro-level problems (with tangible examples and practical tips so you can make progress).

Before you read the rest: I’ve included a case study for each macro-level as a tangible example. Each level uses “Alex” as our case study. He’s a founder of a one-person business consulting company, who wears many hats within his business but does outsource some of his work to other freelancers. You will discover Alex's different challenges and emotions at each level.

Level 1: Starving

At this initial stage, your business struggles with one critical issue: acquiring customers.

To be clear, customer acquisition can be a problem with every business, but when I say starving, I mean starving for business.

Just like when you’re sick, you only focus on getting healthy; the same is true for the business.

Likely Identifiers and Impacts:

• The offer is unclear (what, who, how)

• The offer is clear, but there isn’t demand for the service

• You’re not reaching out to enough leads (due to fear of rejection)

• You’re focusing on areas you know you’re good at (not what’s needed)

• Maybe it’s timing, and you’re just starting out

Let’s look at our case study (how he feels): At this stage, Alex either feels excited (because of uninformed optimism) or anxious and frustrated because reality has set in. A lack of customers creates a constant worry. He feels like he’s on an emotional roller coaster — from inspired to questioning whether he’s got what it takes to be a business owner.

What Alex is doing (and assuming): Alex is probably repeatedly changing his offer and customer profile. This makes his business more confusing to him and others. He also offers free sessions to attract leads and demonstrate his value.

Alex assumes his offer speaks for itself rather than tapping into his customers' hearts and minds.

3 Practical Tips (to make progress):

• Understand that your first business will start starving — breathe — things take time to hit your stride.

• Reframe the business as a formula, not an identity (because it’s easy to wrap your ego up early on — your business will evolve)

• Start with people you already know (previous employers, friends, existing connections within your network) to ask if they know someone you can help. If you’re afraid of “no,” you have a long road ahead.

Level 2: Surviving

Your business faces problems in various areas, probably contributing to this “stuck” or “constantly behind” feeling.

The irony is that you’re surrounded by opportunity. But it’s time to narrow priorities and find the bottleneck preventing growth.

Likely Identifiers and Impacts:

• You’re over-diversified in the services you offer

• Your offer is good, but service delivery is poor or not optimized

• Your service delivery is good, but your offer is poor and confusing

• Customer acquisition is expensive (because of lack of attention or credibility)

• You’re in a crowded market or have the wrong setup for your business model

• There’s no clear, unique selling proposition

Back to Alex, our case study (how he feels): Alex feels overwhelmed and scattered. The abundance of tiny issues makes it hard for him to focus on any single problem. He is frustrated by the inconsistent results and the challenge of finding a clear path to improvement.

What Alex is doing (and assuming): Alex offers a wide range of services to ensure he’s available to many customers — strategic planning, marketing consultation, and lean operations review. This spreads him too thin and confuses potential customers. Despite having the skills to handle all three he will struggle make meaningful progress.

3 Practical Tips (to make progress):  

• Narrow to one core offer (e.g., strategic planning) to streamline operations, simplify marketing, and focus on one type of customer. (You can expand services to customers once they are within your ecosystem)

• Add a gateway offer to show customers what it’s like working with you (that’s lower-priced and lower-risk) — here’s mine

• Find the one thing that makes you different (it can be one small thing) and turn it into your unique selling proposition

Level 3: Growing

Your business is experiencing revenue and customer growth (nice!), so the problem at this level is actually hidden.

You’re not paying enough attention to your business model's inefficiencies. Here, you’re earning more but letting more go to waste.

Growth mode often triggers you to let your guard down. And the last thing I want you to do is hit the cliff (because it’s dangerous).

A small reframe → Think of your business as a bucket; revenue is the water. When the bucket is full, it’s better to patch the holes before adding more water.

Likely Identifiers and Impacts:

• Revenue increases, but expenses are being overlooked (causing bloat).

• Cash flow gets tighter (marketing, sales, and software outflows happen faster than a customer payment recovery).

• Delivery of services starts to strain due to a lack of business systems.

• Long-term business development is neglected (due to time spent fulfilling existing promises).

• Communication with customers suffers due to time constraints (e.g., email responses go from 24 hours to 72 hours)

Let’s look at Alex (how he feels): Alex feels both excitement and stress. The growth of his business is exhilarating, but the mounting pressures of managing increased customer demands and tighter cash flow are pushing down on him. Revenue keeps his business afloat but also gives him the info he needs to pinpoint what’s working (without growing recklessly).

What Alex is doing (and assuming): Alex refocuses attention away from customer acquisition to optimization, trying to review and install tools to manage appointments, invoicing, and communication. He’s also actively hiring accountants to help maintain cash flow, manage his books, and coordinate with more freelancers to help support his fulfillment process. This means finding ways to save time (but growing expenses).

3 Practical Tips: 

• Software is vital for lean business models, but don’t default to buying annual subscriptions because it’s cost-effective. Instead, buy the monthly plan until you know they are the right ones to use long-term. Software (for all its benefits) easily bloats ops and finances.

• Hire coaches, consultants, and strategists to serve as your thought partner — Solomon’s paradox is a real problem in growing companies (never heard of it? It’s the phenomenon that you’re fantastic at giving others advice, but suck at taking your own)

• Get clear on your drivers and levers

Level 4: Thriving

Your business is rocking and rolling. It’s growing without you having to do more. It’s almost like you're on autopilot.

You’re a walking success story to many people, but you're now facing a business problem that’s a bit different from anything you’ve faced before.

You’re facing a “status” problem, which means you’re at a mental, philosophical, and strategic crossroads.

Do you keep going for more? Do you settle with what you have? Do you search for a new game to play? What’s the next thing?

This is the so-called ‘good problem to have,’ but there’s more to be had for ambitious business owners.

Likely Identifiers and Impacts:

• Your concerns are less on the business fundamentals or processes and more on your identity as a business person

• You struggle with the notion of letting go of control

• You have the space to think 1-2 years ahead

• Your waitlist is deep — customers will wait a long time to work with you

• Pricing doesn’t seem to be a problem

Back to Alex (how he feels): He feels confident, but under the surface, he’s uncertain. While his success brings a sense of accomplishment, he also grapples with the future and his identity. Relinquish control of operations? Does he sell? Does he hire a CEO? Does he stop here and go no further?

What Alex is doing (and assuming): Alex hires a business coach to decide to scale up (and hire) or stay within this zone (and focus on becoming the leader in his niche). He started to inch upmarket in prices and services but doesn’t sprint until he’s clear on direction. He attends masterminds with others experiencing the same issues — and really tries to grapple with the one key strategic decision of what’s next?

2 Practical Tips:

• Every level of business requires you to unlearn just as much as you need to learn (and the critical framework is ‘what got you here, won’t take you there’)

• Assuming thriving will last forever is a recipe for disaster — markets are ever-changing — I don’t care if you’re the best, someone will always try to dethrone you (even if that’s the market)

Level -1: Dying

Your business is facing critical survival issues.

It’s time to reassess and refresh.

While this is positioned at the end of this post, it can come after any of the levels mentioned above.

Likely Identifiers and Impacts:

• The market is advancing faster than you (and you’re not adapting)

• Customer numbers and revenue are declining

• Expenses are rising faster than revenue

• Employee turnover is increasing

• Customer retention is shortening

• Fulfillment processes remain inefficient (and now are a detriment)

Alex’s struggles (how he feels): Alex feels desperate and disheartened. The decline in growth and rising costs create a sense of urgency and frustration. He is officially scared of his business's future and feels he’s waiting too long to adapt to changing market conditions.

What Alex is doing (and assuming): Noticing a decline in everything, Alex starts pulling all the levers he can (a little bit in crisis mode). He is reassessing his service model, considering overhauling the approach and exploring new offerings to adapt to market demands (and probably letting fear get in the way of good decisions).

3 Practical Tips: 

• Use Pareto principle to narrow your focus on the 20% efforts that have caused 80% of your results (so your attention and worry are not scattered or wasted) — start assessing there

• Go through a business and mental “Spring cleaning” — eliminate what isn’t serving you

• Go back to doing things when you were in Level 1: Starving

The point of this letter is awareness.

Every business has and will have problems. Infinite problems.

I want you to think big picture about your business.

• What is your macro-level problem?

• What sub-problems matter?

• How do you feel?

• What practical actions are you taking (and are they the right ones)?

No business will ever be perfect, but you can be proactive (and reactive).

Take stock of your situation, implement the strategies that best fit your business model (and stage), and steer your business toward a successful future.

That was a long one.

But also aimed to be a super helpful deep dive (when you need it).

Thank you for reading.

See you next week.

— Peter

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