Family-owned businesses are a vital component of Kenya’s economy, with Nairobi County serving as a key hub for their operations. Despite their economic significance, many face persistent performance challenges. Only 33% survive into the second generation, and a mere 15% reach the third. This decline is largely attributed to lack of open innovation, which limits competitiveness and responsiveness to market changes. The objective of the study was to determine the influence of open innovation strategy on the performance of family-owned businesses in Nairobi County, Kenya. The theoretical foundation of the study was the Strategic Choice Theory, adopted positivist philosophy and used ex post facto research design. The target population was top and middle managers from 226 family-owned businesses in Nairobi County. The sample size consisted of 399 respondents. Data was collected by structured questionnaires and analyzed through descriptive and inferential statistical methods. The findings show that open innovation significantly influences performance of family-owned businesses (β = 0.613, p < .001). It was concluded that open innovation is a transformative strategy for family-owned businesses seeking sustained performance and growth. The study recommended that financial institutions and development agencies should prioritize funding models that incentivize open innovation, enabling family firms to collaborate externally and enhance performance. Such innovation initiatives will empower smaller businesses to remain competitive and resilient in rapidly evolving markets.