Entrepreneurial climate in Croatia nowadays is not on the highest level, but entrepreneurial activities are not lacking despite being present because of necessity rather than because of perceived opportunities. Innovation is the key factor that provides existence of the company and that can attract as many demanding as possible customers whose number is increasing. On today’s market, innovation has a big role, especially when it comes to small and medium entrepreneurs because innovations provide recognition, customer loyalty and potentially, competitive advantages. However, innovation is not the only thing that ensures survival. It is important for a company to have employees who know how to properly utilize company’s resources, balance their consumption depending on market’s opportunities and to direct them in those activities which will provide the best results for carefully identified users of company’s products and/or services, which can result in higher earnings that can ensure good financial results and business safety. Every company’s aim is to operate profitably, and accordingly top management must create a market performance strategy. Strategic planning and management are presenting long-term and continuous process based on environmental analysis and, besides environmental factors and their impact on business operations, owner and manager characteristics, as well as characteristics of persons in charge of implementing strategic management process, have an important role. Among three strategic management levels, in business operations of small enterprise which this thesis is based on, only two levels are present because of the specificity of its actions. The research part of the thesis relates to case study of a small enterprise that took advantage of its traditional and non-competitive production to develop a new part of the business focused on tourism, as well as the absence of ecological product on the market, and turned company’s production part into a tourist attraction. By using story telling concept and developing many different products that became authentic souvenirs with a high selling price in its product range, a larger source of income was assured and eventually business stability and profitability. Research results of the impact of strategic management on the business operations of the small enterprise show that external and internal innovation is the key element in running business since that is the only way to keep up with increasingly changing market trends and environmental changes. The case shows the importance of analysing internal environment on which new solutions to convert company’s weaknesses into new strengths are based and to make the most of the opportunities, as well as the recognition of customer needs and influence their perception to become consumers of company’s products and services.