This study investigated the effect of value-added programmes on performance of SMEs within Kisumu City’s business incubation programme. It specifically examined the effect of innovation, and capacity building on SME performance. The study was anchored in the Social Exchange Theory and the Dynamic Capabilities Theory, which provided a strong theoretical foundation for understanding the mechanisms through which incubation support enterprise growth. A descriptive research design was employed, targeting 2,800 SME owners participating in the incubation programme and 44 field officers from enterprise support organisations (making a total of 2,844 target population). Using the Miller and Brewer (2021) formula, a sample of 323 respondents was selected through probability and random sampling methods. Data were collected using structured questionnaires and analysed with SPSS (version 26) and Microsoft Excel. Descriptive statistics (percentages, means, and standard deviations) and inferential techniques (regression, ANOVA, and Pearson’s correlation) were applied. Findings revealed that innovation significantly enhanced value addition and SME performance, while capacity-building provided essential skills for growth. The model explained 55.5% (R² = 0.555) of the variance in performance, and the ANOVA test confirmed the model’s validity (F = 65.634; p < 0.05). The study concluded that value addition through incubation programmes plays a vital role in improving SME performance. It recommended that managers, policymakers, and stakeholders strengthen innovation, and capacity building to enhance SME growth and sustainability.