Abstract: This study aims to examine the entrepreneurial orientation associated with business performance by incorporating flexibility strategies as mediation and the external environment of the business as moderation by taking studies in the small handicraft industry sector in East Java Indonesia. Data collection techniques used questionnaires distributed to UKM owners or managers of the craft sector as many as 198 entrepreneurs. The results of testing structural equation modeling with WarpPLS show that entrepreneurial orientation does not have a significant positive effect on business performance while entrepreneurial orientation on flexibility strategies has a significant positive effect. The results of the verification of the flexibility strategy mediate the relationship between entrepreneurial orientation to performance while the external business environment is not able to moderate the relationship between entrepreneurial orientation and performance.