With an average occupancy rate of 48% during peak season, small and medium hotels (SMHs) in Mauritius are no longer competitive as compared to large hotels (LHs). SMHs are challenged to survive in a market where competing solely on price no longer guarantees sustainability for the future. SMHs face the threat of closing down with job losses for both management and workers. In order to survive, SMHs have to relook into their strategy. The purpose of this study is to assess the business model of SMHs in order to highlight their weaknesses which are hindering them from expansion and innovation. This study used a mixed approach consisting of two phases. Phase 1 consisted of structured interviews, guided by the business model canvas (BMC), which were carried out among 30 SMHs. In phase 2, a self-assessment questionnaire based on BMC was administered to the SMHs. In order to assess the mechanisms of innovation within each building block of the BMC, responses from the questionnaire were further coded in SPSS. The result of phase 1 shows that BMC of SMHs differs mainly in value propositions for targeted customer segment. Results from data analysis in phase 2 confirmed that within each BMC building block, the three areas of innovation are customer relationship, customer segment and key resources. The knowledge obtained from this study will help SMHs to analyse their internal capability for business model innovation (BMI), hence, serve as a guide to institutions supporting SMHs to focus on priority areas.