We examine whether organizational climate for personal initiative (PI climate) is conducive to firm innovation in small and medium-sized firms. Employees with PI are self-starting, proactive, and persistent, and a PI climate is characterized by common norms of encouraging PI at the workplace. A climate that fosters PI among employees would enhance the innovation output of firms, since it increases not only proactive thinking about future opportunities and problems but self-starting action as well. This PI climate is distinct from the team climate inventory (TCI, Anderson and West, 1996). We contrast the PI climate measure (Baer and Frese, 2003) with the TCI for predicting radical and incremental innovations in firms. Findings reveal (with 25 firms, N = 82 employees) that PI climate was related to radical innovation, but not incremental innovation. On the other hand, the TCI (unrelated to radical innovation) was related to incremental innovation. Our study results imply that different organizational climates account for the different forms of innovation in firms.