(FORTUNE Magazine) – FROM THE FOLKS who bring you Cheerios cereal, Yoplait yogurt, and Red Lobster restaurants comes some unconventional management advice. First, President Mark Willes, 47, says, ''Don't count on acquisitions for growth.'' Then CEO Bruce Atwater, 58, adds, ''Don't rely on your brand name.'' What's going on in Minneapolis? For one thing, General Mills tried the acquisitions route, and diversification led almost nowhere. In 1976 the food company derived 70% of sales from a variety of either low-growth or cyclical businesses. Studies of 6,000 public companies by Willes, a former chairman of the Minneapolis Federal Reserve, found that two-thirds of the 88 best performers -- in terms of return on equity and earnings-per-share growth -- operate in only one or two business segments. So General Mills has divested nearly $3 billion of businesses over the past ten years, including Kenner Parker toys, Izod apparel, Talbots and Eddie Bauer preppy retailers, and a dozen weak restaurant operations. It is now putting 75% of its capital spending -- $1.2 billion from 1989 to 1991 -- into cereals and restaurants. Says Willes: ''We're very firm with our commitment to internal growth. We tell our managers, 'You are going to get us growth, not acquisitions.'' As for brand names, Atwater makes this point: ''You have to constantly evolve your product.'' For example, General Mills pitches Cheerios, a 48-year- old brand, as an oat-packed healthy food. Such creativity helped the $1.4 billion Big G division increase revenues in the $6 billion U.S. dry-cereal market. According to General Mills, adding calcium to Gold Medal flour helped enrich its lead over Pillsbury's flour, and introducing microwaveable products put Betty Crocker ahead of Procter & Gamble's Duncan Hines in the $800 million cake mix market. The company applies the same evolutionary approach to its restaurants. Every seven years each Red Lobster undergoes an expensive remodeling based on feedback from monthly customer surveys. Says the restaurant president, Joe Lee, 48: ''My competitors don't seem to change. We're faster to change, more in tune with our customers, and that gives us a competitive edge.'' Olive Garden, an Italian dinner chain born inside a General Mills R&D lab four years ago, already has 144 units and will add at least 250 more over the next five years. That makes it General Mills' fastest-growing business and probably the fastest-growing major chain in the U.S. Says Willes: ''Red Lobster and Olive Garden are now so dominant that only if we goof and fall down can anyone else catch us.'' Goldman Sachs analyst Nomi Ghez says that operating earnings from restaurants, currently an estimated 22% of General Mills' total, will likely grow 20% annually during the next five years. ''General Mills,'' she says, ''is one of the best-managed, most profitable, and better-growth companies in the food group.'' For fiscal 1989 the company will report estimated profits of $317 million and sales of about $5.8 billion, and investors are starting to smell something cooking. General Mills stock has been a sluggish entry in the food group since 1983 and was among the industry's worst performers last year. But so far in 1989, it has risen 20% to a recent $62 a share. With the company's cross-town rival Pillsbury eaten up by Grand Metropolitan, analysts would not be surprised if General Mills becomes a takeover target. Insiders hold only about 4% of the shares. Says John McMillin, an analyst at Prudential-Bache: ''General Mills must perform to survive.'' Atwater does not disagree. As he puts it, ''Our best defense is a high stock price. You'd be very hard pressed to make this place more efficient or more innovative.''