The development of innovation activity in small and medium-sized enterprises leads to a competitive advantage and enables market prosperity. Entrepreneurship is the strength and driving force of any economy, whether it is a small, medium or large enterprise. Every entrepreneur takes a risk when starting a venture. The mere fact that almost two-thirds of employed persons are in small and medium-sized enterprises leads to the conclusion of how important the emphasis on the development of innovations in small and medium-sized enterprises is. An innovative entrepreneur is considered to be an individual who will successfully transform ideas into action - a product or service. The success of small and medium-sized enterprises depends on the creativity of management, employees and the innovation of the entire organization. Today, companies face increasing and growing competition, changes are becoming more intense due to globalization, therefore it is necessary to apply different models of innovation in order to gain a competitive advantage. According to the research carried out in this thesis, constant innovative activity brings success and development of the company, while a good part of state and public support for small and medium-sized entrepreneurs is missing for the same.