The study investigated the effect of competitor orientation on innovation among SMEs in Yobe State, Nigeria. The study adopted cross-sectional survey design. The target population was 363 participants who were either SMEs owners or managers. The sample size was 190 respondents. The main research instrument was questionnaire. Data was analyzed using linear regression analysis.The study found that competitor orientation significantly explains 11.7% of the total variance in innovation (Adjusted R 2 =0.256, p=0.000). The study concluded that competitor orientation affects SMEs' innovation. The study made the following recommendations: the need for SMEs managers and owners to employ better competitive methods that give them upper hand above their competitors, and the need for SMEs to maintain a constant relationship with their customers through business discussion forums, phone calls, email alerts of new products or services, after-service technical support, and timely discount offers for key and specific customers who buy in bulk, and maintaining an active presence on social media.