This study aims to explore how failure-based learning (FBL) contributes to innovation-driven performance in small and medium enterprises (SMEs). It examines how learning from past mistakes, experimentation, and organizational resilience can enhance creativity, adaptability, and long-term competitiveness within SMEs operating in dynamic business environments.
A systematic literature review was conducted using the Scopus and Web of Science databases. Studies published between 2010 and 2024 were screened following the PRISMA guidelines. After applying inclusion and exclusion criteria, 53 peer-reviewed journal articles were selected for analysis. Bibliometric tools such as VOS viewer were employed to map key themes, co-authorship networks, and conceptual linkages related to failure-based learning and innovation outcomes in SMEs. The review highlights that FBL fosters innovation by encouraging risk-taking, reflective thinking, and process improvement. SMEs that institutionalize learning from failure exhibit higher levels of creativity and sustainable growth. Organizational culture, leadership support, and psychological safety emerged as critical mediators influencing the effectiveness of FBL in driving innovation performance.