This conceptual article uses dynamic capability theory in small family firms with an aim to provide insights into the market orientation–innovation relationship. The research article synthesizes existing findings from the existing literature on the streams of strategy, marketing and family firms, and proposes an integrated theoretical framework comprising market orientation, potential absorptive capacity, realized absorptive capacity, explorative and exploitation innovation. Furthermore, it addresses existing research questions on the links among constructs and proposes several relationships that may advance current organizational innovation literature. This research article initiates the process of empirical examination of small family firms’ innovation process through this theoretical model. The dynamic capability theory adopted here provides managers with the knowledge on the market orientation–innovation process relationship and dimensions of absorptive capacity that are important for initiating and successfully adopting the innovation process. This research article also fulfils the identified gap in the literature. To the best of the authors’ knowledge, it is the first that brings together and applies research findings from the strategy and marketing literature in small firms’ context and proposes an integrated approach to understand the market orientation–innovation relationship.