Agile information system development methods have been adopted by most software development organizations due to their proven benefits in terms of flexibility, reliability, and responsiveness. However, companies face significant challenges in adopting these approaches. Specifically, this research investigates challenges faced by software development companies in Egypt while transitioning to Agile. As little previous research is available targeting their concerns, we have conducted a grounded theory investigation. Key problem areas were found including lack of cadence in sprints planning, inadequate use of effort estimation and product quality issues.The developed grounded theory reflects on the key problem areas found with SMEs adopting agile practices and can be used by software development practitioners adopting agile methods in Egypt or similar developing countries as an outline for the common problem areas they are expected to find.