Developing countries suffer from rising urban pollution levels, mainly caused by rapid local motorization. Environmental economics research documents pollution’s negative effects on health, and worker productivity. We study how small firms in developing country cities cope with this pollution challenge. Using a set of mobile pollution monitors, we measure the distribution of pollution throughout urban Uganda at a highly granular level.  Using a novel survey to measure firm manager quality, we study how different firms adapt to the pollution challenge. Uganda’s cities feature the same average pollution levels as China’s cities. Despite the negative impacts posed by pollution, we find that Uganda’s small manufacturing firms choose to cluster near major polluted roads.  We argue that this is because road proximity bundles a good (market demand) with a bad (exposure to pollution). We find substantial heterogeneity in adaptation: better managers run more productive firms, better protect their workers against pollution and are recognized by the latter as more responsive to the issues caused by poor air quality.