**Main findings**This study investigates the mediating role of BMI in the relationship between ERM, OA, EO, and SME performance. The findings support that SMEs can improve their performance by enhancing their ERM, OA, EO, and efficiency-centered BMI. Novelty-centered BMI does not mediate the relationship between ERM, OA, and EO and SME performance. The summary of the hypotheses is available in Table 9. The reasons novelty-centered BMI does not have a positive effect on SME performance may be because, first, ERM encourages companies to conduct BMI but not all BMI applications necessarily lead to performance improvement. ERM tends to avoid risks while novelty-centered BMI tends to embrace extensive and adventurous innovation. These two effects may offset each other, meaning that there is no significant improvement in SME performance. Second, novelty-centered BMI may not address a genuine market need or problem and is likely to fail. Insufficient understanding of market demands and customer preferences can lead to products or services that do not resonate with the target audience. Bocken and Snihur (2020) found that in highly volatile environments, novelty-centered BMI can lead to misalignment with market demands, resulting in reduced performance. Another possible reason is that poor execution of innovative ideas, including ineffective project management and operational inefficiencies, can derail innovations. Unresolved technical challenges and reliance on immature or unproven technologies can lead to failure. Wirtz et al. (2016) point out that novelty-centered BMI can sometimes create market confusion and dilute the brand, leading to performance declines. Madhavan et al. (2022) indicate that novelty-centered BMI alone does not guarantee sustainable performance improvements without incorporating efficiency elements and adapting to environmental turbulence. Zott and Amit (2007) highlight cases where novelty-centered BMI leads to overcomplexity and operational inefficiencies, thereby negatively impacting firm performance.Conversely, efficiency-centered BMI not only directly affects SME performance, it also plays a mediator role in the relationship between ERM, OA, and EO on SME performance. ERM helps identify potential risks and inefficiencies within an organization; efficiency-centered BMI uses these insights to streamline operations, cut costs, and allocate resources more effectively, thus improving overall performance. OA requires rapid adaptation to changes, and efficiency-centered BMI ensures that these changes do not lead to unnecessary costs by maintaining operational efficiency and cost control. Additionally, EO often innovates in product and market strategies, and efficiency-centered BMI ensures that such innovations are sustainable and profitable by focusing on reducing costs and optimizing resources. These findings are consistent with those of previous studies. For example, Wei Cui et al. (2023) observe that efficiency-centered BMI helps in reducing transaction costs and enhancing overall operational efficiency, which in turn supports better performance outcomes for firms engaging in green innovations. Loon et al. (2019) reveal that high-technology SMEs in Hong Kong benefit from efficiency-centered BMI by balancing the need for innovation with operational efficiency.The results support that BMI theoretically includes efficiency improvements to existing business models (efficiency-centered BMI) and the development of entirely new business models to explore new markets or products (novelty-centered BMI). However, in practice, especially in resource-limited SMEs, efficiency-centered BMI is often prioritized over novelty BMI, and there are potential contradictions between the theoretical and empirical results. In theory, novelty-centered BMI brings disruptive change and long-term competitive advantage as it usually involves the creation of entirely new value propositions and market opportunities. However, implementing novelty-centered BMI may be more challenging for SMEs due to financial, technological, and managerial experience constraints. These findings demonstrate that SMEs prioritize efficiency-centered BMI (e.g., optimizing production processes, reducing costs, or improving the productivity of existing products) because it usually requires a lower initial investment and results can be seen more quickly.Over the past two decades, the dynamic capability view (DCV) has become one of the most active topics in strategic management. Scholars have identified several dynamic capabilities, such as organizational ambidexterity, resource divestiture, absorptive capacity, and product innovation, and have examined their impact on firm performance. However, knowledge on how and which specific dynamic capabilities influence BMI is still lacking. In order to address the challenges of BMI, firms must build dynamic capabilities that are tailored to their needs and customer base.Among the various dynamic capabilities that exist, this paper examines four specific dynamic capabilities, including ERM, OA, EO, and efficiency-centered BMI. These dynamic capabilities, both individually and in combination with each other, contribute to organizational success. It is worth noting that although novelty-centered BMI does not directly lead to performance improvement, efficiency-centered BMI can be seen as an innovation, especially in resource-constrained and fiercely competitive market environments. Efficiency-centered BMI helps companies improve their financial performance and market position in the short term and enables them to accumulate capital and experience for future radical innovation.More importantly, achieving performance excellence and sustainable growth is a complex evolutionary process that requires enterprises to pay attention to the changes in the external environment, manage a variety of knowledge dynamically, and—even more importantly—establish a good business model. Thus, a more integrated and systematic theory for achieving superior performance and sustainable growth is needed, especially regarding the growth path of innovative firms in the new economic environment. From the dynamic capability perspective, this study provide a more robust explanation for achieving superior performance and sustainable growth.**Implications for practice**Practices related to ERM, OA, and EO helped SMEs develop effective BMI, which indirectly enhanced their performance. The importance of ERM, EO, and OA for SME performance was also supported. ERM, OA, and EO performance are mediated by efficiency-centered BMI, which impacts the path to firm performance. Two important implications arise from this research. First, industrial firms should focus on ERM, OA, and EO practices to improve their BMI and increase performance. Second, SMEs should explore why novelty-centered BMI does not influence their outcomes and how to improve BMI to contribute more to their growth.To make this study more practical, we performed a case study of a SME, a home furnishing enterprise called Daxin (DX) founded in 1999, to implement our recommendations. Following the onset of COVID-19, the company experienced a consistent decrease in profitability and a loss in its market share. It has therefore become vital to enhance its commercial position through various methods.We suggest that SMEs pay attention to ERM, which enables SMEs to identify, assess, and manage internal and external risks, protecting the firm from potential adverse impacts while also identifying and capitalizing on possible opportunities. We identified several main risks facing the furniture industry, including policy risks, economic risks, environmental risks, social responsibility risks, and supply chain risks. We recommend paying attention to national industrial policies and seeking opportunities to build customized furniture projects. At the same time, close contact with relevant government departments is maintained to recognize policy trends promptly and ensure customized furniture projects can enter the implementation stage as soon as possible. To reduce product costs, the customized furniture project should continue to make technical improvements and management innovations and adopt energy-saving and emission-reduction production methods. Establishing solid cooperative relationships with downstream customers and forming a reliable sales network are recommended to reduce the adverse impact of market fluctuations on the customized furniture project. To cope with environmental risks, customized furniture projects should ensure that all production and operational activities comply with national and regional environmental regulations and standards. Additionally, customized furniture projects should consider the planning of environmental protection facilities at the design stage and adopt clean production technologies to reduce the negative environmental impact. Regarding social responsibility risk, customized furniture projects must actively fulfill the customized furniture industry’s social responsibility obligations and show the public how enterprises fulfill their