In this paper we report empirical evidence from a mixed methods approach to investigating the drivers of innovation in New Zealand. The evidence comes from a primary questionnaire survey we conducted across seventy-five local firms plus fifteen face-to-face case study interviews. Our survey response data is analysed using four different types of probability models and the various models are all found to be largely consistent with each other. The insights from these estimation methods are then bolstered by detailed follow-up case studies of individual firms in different industries and product groups regarding their innovation and competition experiences. Our results from both forms of evidence-gathering suggest that in a small and isolated local market such as New Zealand, smallness in terms of firm size may not be an advantage for innovation. The reason appears to be that the notion of ‘small’ itself may have an absolute minimum threshold, below which translating entrepreneurship into innovation becomes problematic. As such, applying theories of local economic development to local economies which exhibit similar features to New Zealand may require us to adjust our thinking in order to take account of different absolute scale effects in different types of economies.