The research objective is to analyze the role of business development, capability, and innovation on the performance of small and medium-sized businesses in the Kenjeran tourism area in Surabaya. Coaching variables and capabilities as external and internal environmental conditions of the company as antecedents of innovations that affect performance. Survey design used a questionnaire for 77 respondents from four types of businesses as small and medium-sized businesses with an analysis technique of structural equation modeling – partial least squares. The results show that innovation intervening the effect of capability on performance. Coaching as antecedents a capability has a central role in improving the performance of SMEs. The implication is that the role of the government in formulating coaching policies is very necessary to improve the performance of SMEs in the economic development of tourism areas.
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