| This research was conducted with the insight that Small and Medium-sized Enterprises (SMEs) in Indonesia are one of the national economic pillars, but also oe of the pillars facing the Indonesian monetary crisis. SMEs continue to grow in the midst of economic crisis in Indonesia. The role of SMEs becomes ironic when faced with the characteristics of SMEs: limited capital, economic capability, and limited diversification, whic eventually give an impact to inefficient marketing system. Previous research tools developed SMEs by utilizing Benchmarking methods, Importance Performance Analysis and Comparative Performance Analysis. In this study, we developed SMEs using a Diagnostic Model Method, which is used for empirical research. The study was carried out in the SME Mina Lestari Manunggal, Gunung Kidul, Yogyakarta, a company specializing in marine products; producing a variety of seaweed chips. In the global market, the ability to compete effectively is of upmost importance. Here SMEs have an opportunity to expand the market by increasing production quality and operational performance. Both of these factors can be improved with effective knowledge management. The data processed using the SEM softwarre Partial Least Square (PLS) proved that knowledge management provided a positive effect for SMEs. Tacit knowledge as an endogenous inner constructs of Knowledge Management, correlates and influences SME Mina Lestari Manunggal. A diagnostic model also showed a positive effect on SME Mina Lestari Manunggal. |