Small and medium enterprises are the engine of economic growth in all developed countries. Understanding the factors that contribute to their success is important in both developed, but even more in developing countries. Since innovation is one of the most important means for achieving economic growth, there are large number of studies dealing with this issue. In this paper, we investigate the factors that influence the innovative activities in small and medium enterprises in Serbia. The factors were divided into two major groups, external and internal, and then we examined the impact of each factor to one of five possible type of innovations in the organization.