Some outstanding small and medium-sized enterprises (SMEs) at home and abroad have achieved sustainable growth through a micro-innovation strategy, but the question of how micro-innovation strategy promotes the sustainable growth of SMEs has not been deeply answered. In this regard, this study combined with the dynamic capability theory, conducted a longitudinal case analysis of Yiwu Shuangtong Company which is the first brand in the global straw industry and the ‘invisible champion’ of domestic SMEs, in an attempt to analyze the mechanism of micro-innovation strategy of SMEs on the sustainable growth of enterprises. The results showed that: (1) The micro-innovation strategy of SMEs follows the evolutionary path of ‘differentiated’-‘specialized’-‘integrated’-‘platform-based’, which has become the driving force for the sustainable growth of enterprises. (2) Guided by the micro-innovation strategy, SMEs build and continuously improve their dynamic capabilities through the circular path of "environmental insight capability-organizational flexibility capability - change and renewal capability", thereby achieving sustainable growth. (3) Under the influence of different micro-innovation strategies, the mechanisms of dynamic capability improvement of SMEs present four different manifestations including structure optimization, specialized technical knowledge optimization, knowledge coordination optimization, and symbiotic relationship optimization, and the fundamental reason is that enterprises according to their own strategic positioning focus resources on optimizing different key activities in the value chain. This research has not only expanded the theoretical framework of micro-innovation and enterprise growth but also provide theoretical reference and management enlightenment for the sustainable growth of SMEs in China.