In a world of hyper competition, innovation is imperative to gain competitive advantage. However, the coin has a flip side, as innovations are often expensive and can be easily imitated by competitors. In this study, the nature of small and midsize enterprises (SMEs) acting on niche markets with few players have been investigated and explored, resulting in a set of Key Success Factors (KSF). The four key research questions answered in this study are: Can innovation lead to competitive advantages? Which type of innovations has the most impact? Are there any differences acting on a niche market (with oligopolistic characteristics) compared with other market structures? What are the key success factors when establishing an innovation process?