Business leadership in tourism startups is becoming a decisive condition for transforming sustainable business practices into competitive advantage and stronger financial performance, because responsible tourism and resource efficiency shape long-term venture survival. Prior research has mainly examined sustainability and performance in established hospitality firms, whereas the statistical mechanism through which sustainable practices become financially valuable in early-stage tourism ventures through competitive advantage remains insufficiently quantified. This study aims to test the direct effect of sustainable business practices on financial performance and to estimate the mediating role of competitive advantage in tourism startups. The calculations are based on questionnaire data collected from March 2024 to January 2025 from 441 founders, co-founders, managers and employees representing 127 recognised tourism startups in Uttarakhand, India, operating in hospitality, wellness, experiential travel, food services and related tourism activities. The empirical design used a five-point Likert scale, reliability analysis, outer-loading assessment, composite reliability, average variance extracted, Fornell–Larcker criterion, Heterotrait–Monotrait Ratio analysis, bootstrapping, mediation testing, Stone–Geisser predictive relevance analysis and partial least squares structural equation modelling in SmartPLS 3.0. The measurement model showed strong reliability and validity: Cronbach’s alpha ranged from 0.893 to 0.934, composite reliability from 0.921 to 0.943, average variance extracted from 0.582 to 0.701 and all Heterotrait–Monotrait Ratio values remained below 0.85. The structural model demonstrated that sustainable business practices significantly affect financial performance, with a standardised coefficient of 0.190, t-statistic of 2.867 and explanatory power of 0.597. A stronger relationship was identified between sustainable business practices and competitive advantage, with a standardised coefficient of 0.869, t-statistic of 57.608, effect size of 3.071 and explanatory power of 0.754, showing that sustainability is transformed mainly through market positioning and differentiation. Competitive advantage had a significant effect on financial performance, with a standardised coefficient of 0.602 and t-statistic of 8.732, while the indirect effect through competitive advantage reached 0.523 and the variance accounted for value of 73.3 per cent confirmed partial mediation. Predictive relevance strengthened the model, with Stone–Geisser values of 0.750 for competitive advantage and 0.502 for financial performance, both indicating large predictive effects. The findings show that business leadership in tourism startups creates financial value not merely by adopting sustainable practices, but by converting them into measurable competitive capabilities, offering a statistically grounded basis for entrepreneurial decision-making and startup policy.