Researchers recently suggested that challenges in the form of adversities and constraints can actually promote individuals, teams and firms. However, it remains unclear how such challenges elicit positive innovation performance. Moreover, we still cannot distinguish between the conditions under which challenges enhance or hinder firm innovation performance. In this paper, we review the literature on coping with a specific and central type of challenge - resource challenge, such as a lack of financial or human resources - and propose an underlying mechanism through which firms can benefit from resource challenges. The paper presents an integrative conceptual framework and looks at the key constructs that explain the effects of resource challenges on firm innovation performance. Further, it proposes two key strategies for coping with resource challenges: simplification-focus and compensation.