Having visited a few commercial dog kennels it was refreshing to find some neighbors who dog sit semi-regularly as a side business. Are there certain businesses or industries best kept small or local?
Anything in the "lifestyle business" category by definition doesn't scale past a certain point. Also, anything that requires a licensed individual (e.g. plumber, electrician). There could be an interesting business opportunity in Uber-izing networks of these small businesses. For example, I need a dog sitter last minute but I don't want to scour craigslist or have to remember which of my neighbors dog sits.
Yes. Anything that does not benefit from either network effects or economies of scale should not scale.
Network effects - If I created the first telephone network, the first phone is basically a paperweight, but the more customers I convince to buy, the more useful each phone is to my other customers.
Economies of scale - Similarly, if I have a car company, the more I scale, the more efficient I can become (I can invest more in engineering and machinery).
Think of trust proxies or an external dependant factor like geographies
An example
A paid Meetup group or a dating app for within a city. These work better at smaller scale than large.
The opportunity is where someone or something causes a change in the underlying restriction such that an infrastructure can be built at scale.
So the answer to your question depends on time and tech
