The Internet is seen by many as a discontinuous innovation which is transforming the manner in which people communicate and shop and the ways in which businesses procure, market, and advertise their goods and services. This study examines the drivers of innovation adoption in small retailers. Using a structural equation model, the authors examine the effects of entrepreneurial tendencies and social capital on the proneness of small retailers in five towns in the United States to innovate by adopting the Internet as a business tool. Results show that, as expected, entrepreneurial tendencies are a key driver of innovative proneness. Social capital had no effect. Surprisingly, innovation proneness had no effect on small retailers’ overall performance. Reasons for these findings are discussed, and implications for small retailers are offered.