This study analyzes the conceptual model to comprehend the relationship between co-innovation and innovation performance, directly or through the mediation of absorptive capacity in small firms. Take ninety-six small organizations employed in the handicraft, textile, food plus beverage, and numerous industries as study objects; this research tested and authenticated the conceptual design empirically using a partial least square based structural equation model analysis. The results show that co-innovation has a significant positive effect on innovation performance. In addition, absorptive capacity has a positive effect on innovation performance. In addition, this study shows that absorptive capacity plays a mediating role in the relationship between co-innovation and innovation performance. The effects of this study emphasize the importance of creating co-innovation with different partners, such as suppliers, competitors, consumers, and business industries, that can enable access to the broader range regarding resources to enhance innovation performance for small firms ultimately.