Pathways to SME Sustainability in Heritage-Based Economies: Institutional Constraints and Adaptive Responses

This study examines how heritage-based small and medium enterprises (SMEs) cope with economic shocks and institutional constraints in a semi-urban context. The study focuses on identifying context-specific barriers that shape SME growth and sustainability in heritage-based, semi-urban settings. Using a mixed-methods design, survey data from 200 SMEs were analyzed with PLS-SEM, and 20 semi-structured interviews were examined through thematic analysis, collected in Kashan, Iran (March–May 2025). We find that inflation and limited access to finance are the primary barriers to firm growth, followed by regulatory delays and administrative complexity. Qualitative findings reveal five recurring adaptive routines, short-cycle cash management, cooperative input purchasing, product simplification/micro-pivoting, reliance on local networks, and minimalist digitalization, that operate in a discernible temporal sequence to sustain firm continuity. By integrating resource-based and institutional perspectives, the paper advances meso-level theorizing on SME resilience and proposes a set of low-cost, actionable policy measures (e.g., streamlined e-licensing, targeted mobile microfinance, and buyer–supplier matchmaking) for local authorities and development practitioners.