Abstract: Paying attention to the small business based on the economic transition context in China, this study divided knowledge search into two types of “reactive search” and “prospective search”, then explored the impact of reactive search, prospective search and the balance of these two search ways on innovation performance. Results show that (1) the effects of two search ways on innovation performance are different, reactive search has an inverted U-shape effect, while prospective search has a U-shape effect; (2) the balance between reactive search and prospective search has a promoting effect on enterprises’ innovation performance, and there is a complementary relationship between these two search strategies; (3) knowledge governance capability plays a mediation role between knowledge search and innovation performance; (4) effectuation exerts a positive moderating effect on the relationship between reactive search and incremental innovation, as well as the relationship between prospective search and radical innovation, also effectuation can weaken the negative relationship between reactive search and radical innovation.