ABSTRACT By examining key characteristics associated with the knowledge-based view (KBV) framework, and clusters of activities of dynamic capabilities in the context of micro firms operating in Liverpool, UK, this study makes a theoretical and empirical contribution to the entrepreneurship literature. In-depth, face-to-face interviews were conducted with leaders of five micro firms in 2017, and follow up interviews in 2018. Aligned with the KBV, assimilating previous business and learning experiences (transferability), incorporating previously developed knowledge (aggregation), taking stock of knowledge through its applicability within the firm (appropriability), linking past and newly acquired knowledge to create firm strategies (specialisation), and making use of knowledge to maximise opportunities (knowledge requirements of production) were highlighted. Fulfiling these characteristics, coupled with firms’ reconfiguration, which emerged through diversifying, or even divesting, can enhance firms’ knowledge base, their competitiveness, and overall performance. A theoretical framework illustrating associations between theory, findings, and their implications is proposed.