Banjo, certain small engines require the valve clearances to be set an certain amount of piston travel AFTER TDC for the compression release to function properly.
Don't know if that's the case with your engine, but if it IS and you are checking the valve clearance at TDC instead of where the mfg. states it should be set the compression release function won't work and the engine will act as you describe.
Are you checking the valve clearances as the engine-specific shop manual dictates?
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