Iomega was working on the smaller Clik Drive but couldn't get it released before CF became the major player in cameras.
My personal feeling is that the Clik drive was not released because Iomega had just settled the "Click of Death" suit and they wanted the Clik Drive to have a very low, less than 1%, failure rate. It took around two years to bring the failure rate from around 1.5% to 1%.
The Zip drive did that reduction work while still shipping product.