Only few micro and small enterprises (MSEs) in Egypt are able to upgrade and thereby become medium-sized companies. The World Bank’s influential Doing Business Reports (DBRs) attribute this phenomenon, which is characteristic of low and middle income countries, mainly to excessive bureaucracy and over-regulation preventing MSEs from formalisation and thereby from access to finance and permits that are prerequisites for company growth. The DBRs therefore claim a strong causal relationship running from regulatory reform to MSE performance and overall economic growth and therefore advocate reforms focussing on the reduction of the complexity and cost of regulatory processes. In contrast to such a viewpoint, we argue that much more comprehensive reforms would be needed to mobilise a larger number of MSEs in Egypt: for example, reforms in education and training policies, competition policies, economic governance, judicial procedures and many other fields. In order to test the thesis of the DBRs together with our own antithesis, we conducted ourselves a medium number of interviews with successful upgraders in Egypt and contrasted their characteristics and experiences with a comparator group of non-upgraders. In addition, we did the same exercise in India and the Philippines in order to know to what degree the Egyptian results are country-specific or hold for other lower middle-income countries as well. Our findings allow us to reject the thesis of the DBRs: For Egypt, India and the Philippines, we can show that the decision to formalise usually comes after a firm has upgraded already, i.e. when the entrepreneur perceives that the advantages of formalisation outweigh its disadvantages. Informality is no obstacle to MSE upgrading, and neither are bureaucracy and over-regulation (even though they are a hassle). MSE owners confirmed that they would be able to bear the high cost and length of administrative procedures if only they had an idea about the chances of a successful result. The main issue for them is thus the lack of security in their treatment by the public administration and judiciary, hence the lack in the rule of law. Other factors are that many entrepreneurs lack relevant skills and know-how in leading a company, readiness to take risks and access to capital, market information and well-trained, motivated workers. MSE promotion policies should thus include reforms on a very broad range of policy fields rather than just deregulation.