Small- and medium-sized enterprises (SMEs) face the inherent tension of depending on external partners to complement their internal innovation activities while having limited resources to manage such open innovation processes. Given the importance of collaborative efforts between multiple stakeholders, we address the open innovation challenges from the SME perspective at the business-ecosystem level. We present an inductive case study of a particular regional ecosystem and focus on the inter-organizational collaboration between SMEs and other stakeholders in the ecosystem. With this focus, we explore how SMEs perceive, organize, and manage open innovation through strong collaborative ties with other ecosystem members. We identify a particular set of challenges for the SMEs due to the misalignment between their business model and that of their ecosystem. Specific findings include the link between innovation type expressed by diverging understandings of the notion of innovation across the ecosystem and the innovation form (here, open innovation), which should be organized and managed on multiple levels of analysis (SME, inter-organizational, and ecosystem). These findings highlight specific attention points for managing and developing open innovation in a regional business ecosystem, and they contribute both to the business-ecosystem literature as well as open innovation literature. •The misalignment between SME's and ecosystem's business models causes OI challenges.•Diverging understandings of innovation across ecosystem shapes its innovation form.•OI in SMEs should be organized and managed on multiple levels of analysis.