Bangladesh is at a pivotal moment in its economic trajectory, aiming to transition from a predominantly agrarian and low-cost manufacturing base into a knowledge-driven, “Smart Bangladesh” by 2041. At the heart of this transition lies the small and medium-sized enterprise (SME) sector, which constitutes over 90% of all industrial establishments. Drawing upon the classical microeconomic insights of Alfred Marshall, particularly his theories on the firm, external economies, and industrial districts, this article—grounded in the author’s extensive doctoral research—examines the present challenges stifling SME entrepreneurship in Bangladesh. It identifies systemic barriers including financial exclusion, regulatory complexity, infrastructural deficits, and human capital gaps. Consequently, the paper proposes a holistic, microeconomic-driven policy framework centered on cluster-based industrial zones, digital financial inclusion, regulatory digitalization, and entrepreneurial education. The article concludes that a policy architecture grounded in Marshallian principles of localized external economies, combined with modern institutional reforms, can create a resilient ecosystem to unlock Bangladesh’s immense entrepreneurial potential.