There are certain types of businesses that are difficult to grow due to either legal hurdles or local protectionist tactics, I've seen this growing up in different states. If you start a business in the wrong place and don't have the right connections your business is never going to succeed, it doesn't matter what your business model is. In certain states they simply do not want large multi-national corporations, interstate corporations or franchises. If you succeed on a small scale and decide to expand you're going to run into all kinds of problems because people are going to come out of the woodwork trying to slow down your expansion (yes, this is a real thing it caught me off guard when I first found out there are people who do this).
There are also some types of businesses (particularly in the financial industry) that when implemented on a large scale are a nightmare to understand because there are so many rules and regulations. No one has a clue what is happening and it is easier to have hundreds of medium sized businesses with narrow focus that anyone can understand easily. Funding these types of businesses because everyone wants some sort of large IPO just makes the problem worse.