The development of ultra precision machine tools is often done in a technology driven manner along a common product development guideline ultimately restricting creativity. To overcome current limitations in micro manufacturing a new concept of small sized machine tools is introduced allowing for a leap in development by dropping below a critical size. Nevertheless, there is lack of methodological aid for the deployment of small machine tools. A reason for it is size effects and their counter intuitive behavior. This review classifies size effects and incorporates the knowledge about them into product development. Additionally, the decomposition approach is introduced. It helps design engineers to develop small machine tools based on the analysis of elements and functions of current machine tools. Those contributions are done within a framework approach called theory of small machine tools.