Lots of small businesses exist in areas that do not have economies of scale, and sometimes have diseconomies. Think businesses where labor is the majority of the costs. Your local plumbing company is probably a small to medium business and Roto-Rooter isn’t hurting them.

Some have some economies of scale but not severe and service or quality or other things matter and there you usually find big businesses and small competing with each other. (I work in the packaged food world, it falls into this category.)

And some, like retail, have such large economies of scale that a small business just can’t really compete. In the case of retail, this is largely because of logistics being such a big portion of cost of goods.