(FORTUNE Small Business) – Every entrepreneur encounters a setback now and then, but it's hard to imagine a more demoralizing miscue than the one Paul Galvin faced in 1930. His Galvin Manufacturing Corp., founded two years earlier, was developing an inexpensive car radio and was badly in need of a loan for working capital. So Galvin arranged to install one of the company's radios--called a Motorola, taking its name from "motor" and "Victrola"--in the car of a local banker, figuring that a personal demonstration would seal the deal. Everything went smoothly...until the banker drove off and the radio triggered a fire beneath his car's hood. "The timing was humiliating," said one of the installers. "A few days later wouldn't have been so bad, but it happened less than 30 minutes after we finished."

Galvin overcame that hurdle--and many others--on the way to making Motorola America's top car-radio brand and eventually a leading electronics firm. As he later said, "I had been down a number of times, and I knew I could get back up." Unlike many entrepreneurs, he wasn't an engineer or an inventor or a man with a brilliant idea--he was simply a businessman determined to control his own destiny. "He never really had a master plan for his company," according to a 1992 Chicago magazine interview with his son, Robert (who succeeded him), "but was rather a congenital improviser who kept finding applications for his original radio technology." Galvin may have been a seat-of-his-pants manager, but he had canny instincts about his market, a knack for adapting in the face of crisis, and a long-term vision that he ingrained so deeply in his company that even today the vastly larger Motorola is not afraid to risk branching out.

Young Paul Galvin could hardly wait to get into business. He started out selling popcorn at the train station in his hometown of Harvard, Ill., at age 13, and soon added ham sandwiches and ice cream, depending on the season. He was driven out of business when the stationmaster put the kibosh on unlicensed concessions (one youthful vendor had nearly been run over by a train), but his childhood experience taught him a valuable lesson he later applied at Motorola. "Recognize the signs," Galvin told his biographer, Harry Mark Petrakis, author of The Founder's Touch (1965). "If you're going to take a licking, take it, and get on to the next job."

Oddly enough, Galvin utterly forgot that lesson in his first venture as an adult. He did a stint working for a battery company in 1920, and he started a similar operation with an old acquaintance the following year. But a sluggish economy and a poor location spelled doom. Even though the company's fate was clear by the end of 1921, he held on until the government shut down the business in 1923 for nonpayment of excise taxes. Galvin learned of the action when he returned from lunch one day and found the offices padlocked--with his coat trapped inside. "I kept thinking about that coat," Galvin told Petrakis. "The government had a right to close my business but didn't have a right to take my coat."

With a wife and child to support, Galvin temporarily shelved his entrepreneurial ambitions and worked for the Brach candy company. Then, in 1926, he got involved in another battery business that failed, but with $750 he bought the company's battery-eliminator equipment (which let battery-run radios run on AC power) at auction. With an additional $565 in working capital, he hooked up with a new partner, his brother Joe, and in September 1928 they launched Galvin Manufacturing in Chicago. No further ventures would be necessary: Galvin would run the firm for the rest of his life.

Galvin knew that plug-in radios would soon make his eliminators obsolete, so the company needed a new signature product. The idea came to him during a 1929 business trip to New York, when he heard that a few Long Island mechanics were custom-installing radios in cars for $240. "I thought about that back in the hotel and on the train returning home to Chicago," he later recalled. "I went back to our shop and called Joe and the boys together and said, 'Why can't we build an automobile radio that we can sell at a decent price?'" That typified Galvin's management style: He'd set a goal and then the people under him would try to meet it.

The best way to attract attention, he decided, would be to have a working radio installation completed in time for the 1930 Radio Manufacturers Association Convention in Atlantic City--just a few months away. He had to conquer a number of logistical problems--how to fit the radio into the dashboard, how to prevent a car's other components from reducing the radio's reception to static, how to keep the signal steady over bumpy roads, and so forth. Galvin and his mechanics worked into the night--on a strict trial-by-error basis, shoehorning parts into place--to meet the deadline. Eventually, to keep from giving up, they stopped recording failures.

Two days before the convention Galvin and his crew came up with a working test model, and it survived Galvin's road trip from Chicago to Atlantic City. He had no booth space, so he and his wife engaged in a lot of fast talking to get stodgy car manufacturers to view a live demonstration and consider entering the "music business," as it was considered then. "People said, 'Who wants a car radio? The idea's silly. Besides, they'll ruin your motor,'" Galvin told a magazine in 1952. At the end of the day he had received a few orders for his $110 radio, and 1930 sales totaled $287,000, with a slight loss (the only one during his tenure) of $3,745. Over the next several years Motorola essentially created--and hence dominated--the market for car radios.

Galvin discovered his next market--two-way communications--during a family trip to Europe in 1936. As they toured Germany, something eerie struck Galvin about the country's new roads, the autobahns: "These roads have not been built just for autos," he said. "They are war roads." Convinced that war would soon break out, he had the company's engineers begin working on radio technology that would benefit the military. The result, in 1940, was the Handie-Talkie, a portable two-way radio created for the U.S. Army Signal Corps, which boosted company sales to $9.9 million that year. That was followed by the first two-way AM police radio in 1941; later the same year Motorola introduced an FM model, which had greater range; and then, in 1943, the first two-way FM portable radio, dubbed the "walkie-talkie." Developed by Motorola engineer Dan Noble (an academic who, at Galvin's prodding, took a year's sabbatical to work for the company and never left), it was key to the American war effort, lauded for helping reestablish order at the conclusion of the Battle of the Bulge. By 1944 the company's military business amounted to more than $80 million.

Knowing that the boom wouldn't last forever, Galvin prepared for the postwar era. When the government banned all new-car manufacturing in 1942, Galvin had 125,000 car radios on hand and a distributor network effectively out of business. Motorola converted them into home radios, giving its distributors something to sell and helping them ride out the war years successfully. Galvin also anticipated the rise of television. "When we do get postwar television," he told a Radio Manufacturers Association audience in 1943, "we will have another industry as big as or much bigger than radio." To make a splash, Galvin encouraged his team not to ape RCA's ten-inch standard, which cost over $300. Motorola engineers came up with a seven-inch model light enough to be moved from room to room. "We're setting a price that will raise some thunder: $179.95," he told his team. When one objected that the "Golden View" TV couldn't be made profitably at that price, Galvin, who according to a former employee could "let go a blast that left your eyebrows singed," told him, "I've got a hunch that's the price. We'll work ourselves into it." They did, and although they lost $34 million in government contracts when World War II ended, sales returned to 1944 levels by 1949 and more than doubled the next year to $177 million, based largely on the success of the inexpensive TV.

During this time Galvin began the process of handing off the business to his only child, Robert. He had started in the company stockroom in 1940, and Galvin made him an executive vice president and his successor in 1948, when he was 26 years old. "The principal fault my father saw in me as a very young man was a lack of discontent," Robert told Forbes in 1963. "He did everything to make me dissatisfied." When Robert became Motorola's president in 1956, he took over a $225 million business from his father (who died three years later) and confronted an era of rapid technological changes. Transistors, diodes, and semiconductors were remaking the electronics field. Motorola, led by Dan Noble's research team, was active in this new area, first as a wholesale supplier and then, in 1956, with such commercial products as transistor-based car radios. Semiconductors remain 16% of Motorola's business today, but were 40% just 20 years ago.

Robert is largely credited with building the modern Motorola, and he did it in his own style. His father had been a hands-on manager of a growing business. "Hearing of a meeting in Bob's office," reports Galvin's biographer Petrakis, "he would sometimes walk into the middle of it and brusquely ask, 'What's going on?'" The soft-spoken Robert preferred a more decentralized style. One semiconductor VP described it to Electronic Design in 1980 as a "high-level philosophical involvement rather than a day-to-day benchmark judgment."

But Robert (who declined our interview requests) retained his father's instincts for survival. He sold Motorola's money-losing TV business to Matsushita in 1974 and stopped making his dad's first hit, car radios, a decade later. Both were in response to increasing competition from Japanese businesses (see box), and he set a new direction for the company. Robert focused Motorola on its heritage of radio communications, and it pushed two-way pagers and later cellular phones. As the New York Times described pagers in a 1976 profile, "Doctors, lawyers, and corporate executives have been wearing the $250 beepers on their hips for years, but the craze has spread to include expectant fathers, salesmen, priests, pilots, and Las Vegas call girls." Motorola got a patent in 1975 on "a complex radio system for citywide portable telephone coverage" and introduced the first cellphones in 1983 (at the time they were a then-miraculous 28 ounces and cost a mere $3,145). Their adoption followed a similar path to the pager's, of course, and Motorola is now the No. 2 cellphone company in the world (after Nokia) and is also a leading maker of two-way radios. Together they account for a third of its sales today, with another quarter coming from Motorola's wired and wireless network infrastructure equipment, like cellular transmission base stations, amplifiers, and switching products.

Robert retired as CEO in 1990, and after a period of outside leadership, Motorola is back in the Galvin fold. The current CEO is Chris Galvin, Paul's grandson, who started at the company by selling police radios while in college and took over in 1997. Like his predecessors, he's faced some setbacks--Motorola's $5 billion Iridium satellite phone system, which went online in 1998, was plagued by technical bugs and low use rates, forcing the company to take a $740 million charge in 1998 and leading to a $3.5 billion bondholder lawsuit in 2000. But Motorola is still among the world's leading tech companies, and if Chris Galvin is smart, he'll turn to his grandfather's life for guidance. "It's human to be dumb, but don't be numb," he would tell Chris, meaning that he should learn from his mistakes. And if he's down, he'll know how to get back up.