Maybe but don't forget London is a very different market with a different setup. Small groups of depots privatised many years ago. No one really had a monopoly because there was so much scope for different companies being able to operate in different areas. That wasn't the case in Greater Manchester. Some companies had monopolies. Take Stockport pre Bee Network. It was basically Stagecoach territory. They ran almost everything. They had a depot right in the heart of town that ran most of the services. Who would have been a shoe in to win individual route contracts in Stockport? Simple. Stagecoach. They'd have known the financials, they had the base.
A small depot isn't some unique specialist building, you need a yard and sufficient covered area to carry out maintenance, and in an urban area like Manchester there will be plenty of those around (the depot I am currently sat in was previously a factory and before we moved in they just cleared the yard and knocked some openings in the side to get the buses in and we use lifts to get under the buses). If you are route tendering your can get in with a single route with manageable number of buses and build over time but with area tendering you are tied to big existing depots with big companies. You pay your money and take your choice but depots aren't particularly a big separation of one being better than the other.
Stagecoach kept the dominance in Stockport because they were good at running bus services for much of that period, First didn't keep the dominance in north Manchester because they weren't so there were more operators on that side of town (though they had probably be declining for several years due to the long term threat of franchising making it less attractive to stay around) but in many cases it is anyway about the potential than the reality - the Manchester contracts didn't really have any contracts of a suitable size for a genuine SME and all of the contracts ended up with what I would call big group companies so whatever they though they did to keep/attract those smaller operators didn't work.
And I will be blunt. London's system could arguably be no longer fit for purpose. I used to live in South West London. When I moved there you have Mitcham Belle, London United and Go Ahead all competing. Now it's just Go Ahead. They have pretty much every route in the area. They own the depots, they pretty much have the monopoly. Don't think London's model is some grand panacea to the problem. The number of operators has fallen dramatically over the years. It may well be they end up in a worse state than the franchise areas going down the depot route.
The issues in London over operators wasn't access to depots, as you say there used to be more operators all of whom had a base, but the risk issue I previously mentioned. Smaller operators couldn't carry the losses that incurred at the end of the contract as inflationary increases didn't keep up with cost increases and they didn't have the resources to keep winning contracts every year to balance out the profits from Year 1 covering the losses from Year 5, that is what did for Sullivans, Harris, Mitcham Belle and countless others.
And in the deregulated market we have seen countless small companies try to get a foothold in an area with a small commercial network, only to be figuratively (and in some cases literally!) run off the road by the big boys.
And we have seen numerous develop and thrive, I currently work for one and my previous employer was also one. It depends on where you are, what you do and how good at it you are. They do often sell up after a while, the successful ones get to a certain size where the nature of the business changes and either the owner is looking to retire or is no longer enjoying running a business due to getting to a size where it is all paperwork. It used to be they would be replaced by new operators but all the "extras" the government have loaded onto bus operators (Concessionary Fares, BODs, A/V Announcements etc - all laudable but expensive or difficult to deal with as a new start up whilst also having to deal with setting up the business and adding more money to be found before you can start) mean fewer operators are starting now.
If anything, I would say the smaller companies are more used to the tendering process and are more used to balancing the need to be competitive on price with the need to be sustainable.
The simple point is there is no standard small operator model nor is there a standard council tendering process so it will simply vary from place to place.
We have also seen the opposite side of the point you’re making in Dumfries and Galloway: there the small companies have been willing to take more of a risk knowing that the penalty clauses don’t really matter if you’re never going to be big enough to repay them if everything hits the wall. We can call this the Sullivan’s Buses model: the TfL fines were meaningless to an insolvent company.
I'm not sure anyone has actually been clear on what the issue was with the Dumfries & Galloway tendering, Stagecoach certainly seemed to be avoiding saying what it was. I suspected that it was a compensation figure tied to the size of the company bidding, so a small independent would be risking a small fine but Stagecoach could have been looking at a fine larger than the size of the contract. You may, though, be correct and it was simply that the independents just thought if it was going to be activated they would be bust and so wouldn't be paying anyway.
The point I have been trying to make is there is a difference in how normal tendering is dealt with and how franchising is dealt with in terms of contract flexibility and scale (London route tendering isn't really franchising just a regulated market). If you look at the proposals for Merseyside they are even worse than Manchester for smaller operators (and by smaller you are including anyone up to, though possibly not including, Rotala in size) as it is 5 huge area contracts and then, it appears from statements, school buses but nothing in the middle. If I were going to introduce a franchising scheme in somewhere like Manchester I would have had the big area contracts based on a single large depot covering all the high frequency high volume work, some smaller contracts of 20-30 vehicles (big enough for a new entrant to the market but small enough for a new depot to be created to house them cost effectively) covering some second tier 'commercial' and larger 'tendered' work (based on what they were before franchising) but at the bottom I would have kept some of the small, local contracts for 1-3 pvr to be tendered in the traditional manner (so without all the extra paperwork requirements) aimed at the smaller operators in my area (possibly what & where shaped by which operators I had, so in Manchester case more in the north & east and less in the south) intended to keep some of those operators active and possibly attract some of the coach operators in. It wouldn't have been much more work for the authority and creates work for the smaller local businesses which allows more flexibility in the system for change and development down the line.