Abstract Family firms’ collaborative innovation is characterized by the so-called ability-willingness paradox i.e. they are less willing to engage in collaborations despite being more able to manage them for innovation purposes. In this paper, we introduce collaboration partner type and spatial proximity as two important boundary conditions of this paradox. We examine the differences in collaboration for innovation across different spatial proximities and partner types for small family and non-family firms. We use a large sample of 6272 small firms in the United Kingdom (UK) during 2002–2016 to show that this paradox is indeed not a universal phenomenon. Small family firms overcome their lower willingness when collaborating with customers within regional proximity and, based on their unique characteristics and superior ability to govern these collaborations, they are able to generate an innovation premium compared to small non-family firms.
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