According to the Census Bureau of the United States, 99.7% of U.S. firms employ fewer than 500 workers (Small Business and Entrepreneurship Council, 2016). Further, of the 22.9 million net new jobs created from 1993 to 2013, 63% are in small businesses (Small Business Administration Office of Advocacy, 2014). Thus, the performance of these small- and medium-sized enterprises (SMEs) is greatly important to a variety of stakeholders. A factor that enhances SMEs’ performance is firms’ entrepreneurial orientation (EO). EO is characterized by firm behavior that involves taking risks and being innovative and proactive (Covin & Slevin, 1989, 1991). It is also a proven predictor of firm performance (e.g., Wiklund & Shepherd, 2003). However, given the complex relationship of SMEs’ resource investments and firm performance, it is likely that additional factors beyond EO are at work. Despite the acknowledgment that (1) human resources (HR) management is vital for small and entrepreneurial firms (Bendickson, Muldoon, Ligouri, & Midgett, 2017) and that (2) SMEs often rely on external parties for HR services (e.g., Klaas, 2003), few studies explore the combination of EO and HR practices. Given that resource insufficiency (Dada & Fogg, 2016; Klaas, McClendon, & Gainey, 2000) often characterizes SMEs, the interaction of EO, which is a resourceintensive strategic posture (Covin & Slevin, 1991), with human capital (HC), which is a key resource in small firms (Coder, Peake, & Spiller, 2017; Lepak & Snell, 2002), deserves additional attention. A broad definition of HC is as “a unit-level resource that is created from the emergence of individuals’ knowledge, skills, abilities, and other characteristics” (Ployhart & Moliterno, 2011, p. 128). In order to enhance SMEs’ focus on innovation and proactiveness for competitive advantage, we offer a new insight: The outsourcing of traditional HR functions (i.e., recruitment and training) can act as a lever to strengthen the relationship between EO and firm performance in SMEs. The current study uses the knowledge-based view (KBV) of the firm (Grant, 1996) to examine the relationships between HR, EO, strategic HC, and firm performance. In addressing this under-researched area, we make four contributions to the literature. First, to the best of our knowledge, no other study examines the effects of outsourcing specific HR functions, as opposed to simply the effects of general HR management practices, on SME performance (e.g., Hayton, 2003). Second, although HC has a strong relationship with firm performance overall (Crook, Todd, Combs, Woehr, & Ketchen Jr., 2011), empirical testing of HC as a competitive advantage is somewhat limited, and even more so for SMEs. Thus, we add to the understanding of the effects of HC strategy on SMEs. Third, we expand the EO literature by showing that specific human resources outsourcing (HRO) enhances the EO–SME performance relationship, with strategic HC acting as an influencer. Finally, in a departure from much of the EO literature (with the exceptions of Dada & Fogg, 2016 and Wiklund & Shepherd, 2003), we utilize the KBV as a lens to examine factors that impact SMEs’ firm performance.