The demographic component of East Java's economic growth may be observed in Lamongan Regency, which has a number of small and medium enterprises (SMEs), with food and handicraft solid kinds observing particularly big growth. These hobbies still have a lot of difficulties and problems, however. Having insufficient human resources is one of them. An explanatory method of research was used in this study's quantitative research. The objective of the research is to demonstrate and explain in an empirical way how innovation affects knowledge management and entrepreneurial leadership, both of which improve business performance. The probability sampling method and proportional area random sampling were employed to select a sample of 285 SMEs from an overall population of 462. In this study, structural equation modeling (SEM) was used as.