The aim of this paper is to explore the perception of innovation within Indonesian SMEs in the wood-furniture industry in Central Java, Indonesia. Qualitative research was employed by interviewing SMEs managers/owners. The study showed that SMEs' perception of innovation was not necessarily related to 'newness' or 'novelty' as suggested by some scholars. The innovation carried out by the majority of SMEs in this study is likely to be considered as incremental innovation. The characteristics of the wood-furniture industry and SMEs are believed to contribute to the different perspectives concerning innovation than those reported in the literature. Even so, they are unlikely to prevent Indonesian SMEs to become entrepreneurial and competitive firms.