(FORTUNE Small Business) – I have no intention of telling you the truth. Instead I'm going to tell you a story. This is a story about why entrepreneurs must forsake any attempt to tell the whole truth and nothing but the truth, and must instead focus on what people believe and then work to tell them stories that fit and enhance their worldview.

Make no mistake: This is not about tactics or hype or little things that might matter. This is a whole new way of doing business. It's a fundamental shift in the paradigm of how ideas spread. Either you're going to tell stories that spread, or you will become irrelevant.

In the beginning, there was the story. Before marketing, before shopping carts, and long before infomercials, people started telling stories to themselves and others. We noticed things. We noticed that the sun rose every morning, and we invented a story about Helios and his chariot. People got sick, and we made up stories about humors and bloodletting and we sent them to the barber to get well.

We tell ourselves stories because we're superstitious. Stories are shortcuts we use because we're too overwhelmed by data. The stories we tell ourselves are lies that make it easier to live in a complicated world. We tell stories about products, services, job seekers, the New York Yankees, and sometimes even the weather.

We tell stories to our spouses, our friends, our employees, and customers. Most of all, we tell stories to ourselves. We tell ourselves stories that can't possibly be true, but believing those stories allows us to function. We know we're not telling ourselves the whole truth, but it works, so we embrace it.

If we tell ourselves lies because these stories make it easier to get by, then marketers are a special kind of liar. Marketers didn't invent storytelling. They just perfected it. Marketers lie to consumers because consumers demand it. It's your prospects who will walk away if you obsess about the last sigma of this or that without bothering to tell an interesting story about it.

Some marketers do it well. Others are pretty bad at it. Sometimes the stories help people get more done, enjoy life more, and even live longer. At other times, when the story isn't sufficiently authentic, it doesn't work for anyone. Humans are too smart to be fooled for long by a Potemkin village, a façade that pretends to be one thing and turns out to be another. Sure, you can fool some people once or twice, but this is the key lesson of the new marketing: Once fooled, a person will never repeat your story to someone else. If you are not authentic, you will get the benefit of only one sale, not 100. The cost of your inauthentic deception is just too high.

While your story will not be the whole truth--you don't have enough time to tell the whole truth--its core must be authentic. And you must live the story. The best coin dealers own their own coins for investment, just as George Gilder, the fabled technology prognosticator, lost more money in the stock market than most of his readers when the telecommunications bubble tanked.

If you want to grow, make something worth talking about--not the hype, not the ads, but the thing. If your idea is good, it will spread. If you want to send a message of friendly service, it helps to hire friendly people. If great design is at the heart of the story you're telling, you need a designer to run things.

In the 1980s, a few entrepreneurs came up with a great business. They bought some name-brand stereo speakers (last year's model) and packed them into a U-Haul truck. Then they parked the truck behind a dorm at Harvard and started whispering. "Pssst ... Hey! You wanna buy some speakers?" While they never actually said that the speakers were stolen, it seemed to passersby that they were--and so had to be a great bargain. Harvard students shouldn't have fallen for this. Of course, they did. In droves. The entrepreneurs sold out in no time. The story the students told themselves made the purchase incredibly appealing, even if the speakers cost about what they would have at the local stereo store. The local store spent plenty of money on advertising and real estate. These entrepreneurs made it easy for people to tell themselves a story. They both sold speakers for the same price. Who won?

Did the stolen-speakers-on-the-truck story make you feel a little queasy? Tricking people into buying speakers they think have been stolen is unethical, isn't it? Well, marketing the $90 speaker cable that makes a stereo sound exactly the same as the $12 speaker cable in a blind test is just as unethical, isn't it? Consumers (marketers included!) believe, way down deep, that the right thing to do is to buy a product or service because of what it actually does. We are taught that we ought to make products and services that actually do something better than the competition, instead of marketing things that we need to tell stories about. Our prospect's hard-earned money ought to be spent investing in things with plenty of utility, not in useless fads.

We say that's what we believe, but then we buy overpriced designer T-shirts, eat at overpriced but trendy restaurants, and stay in a fancy hotel on a business trip. Similarly, a nasty flight attendant influences our view of an airline more than a plane arriving ten minutes early at its destination.

Georg Riedel is a fibber--an honest spinner of tales. He tells his customers something that isn't true--his wineglasses make wine taste better--and then the very act of believing it makes the statement true. Because drinkers believe the wine tastes better, it does taste better.

Georg is a tenth-generation glass blower, an artisan pursuing an age-old craft. I'm told he's a very nice guy. And he's very good at telling stories. His company makes wineglasses (also whiskey glasses, espresso glasses, and even water glasses). He and his staff fervently believe that there is a perfect (and different) shape for every beverage. According to Riedel's website, "The delivery of a wine's 'message,' its bouquet and taste, depends on the form of the glass. It is the responsibility of a glass to convey the wine's messages in the best manner to the human senses."

Thomas Matthews, the executive editor of Wine Spectator magazine, said, "Everybody who ventures into a Riedel tasting starts as a skeptic. I did." The skepticism doesn't last long. Robert Parker Jr., the king of wine reviewers, said, "The finest glasses for both technical and hedonistic purposes are those made by Riedel. The effect of these glasses on fine wine is profound. I cannot emphasize enough what a difference they make." Parker and Matthews and hundreds of other wine luminaries are now believers (and as a result, they are Riedel's best word-of-mouth marketers). Millions of wine drinkers around the world have been persuaded that a $200 bottle of Opus One (or a bottle of Two-Buck Chuck) tastes better when served in the proper Riedel glass.

Yet when tests are done scientifically--double-blind tests that eliminate any chance that the subject would know the shape of the glass--there is absolutely zero detectable difference among glasses. A $1 glass and a $20 glass deliver precisely the same impact on the wine: none.

So what's going on? Why do wine experts insist that the wine tastes better in a Riedel glass at the same time that scientists can easily prove it doesn't? The flaw in the experiment, as outlined by Daniel Zwerdling in Gourmet magazine, is that the reason the wine tastes better is that people believe it should. This makes sense, of course. Taste is subjective. Riedel sells millions of dollars' worth of glasses every year. It sells glasses to intelligent, well-off wine lovers, who then proceed to enjoy their wine more than they did before. Marketing, in the form of an expensive glass and the story that goes with it, has more impact on the taste of wine than oak casks or fancy corks or the rain in June. Georg Riedel makes your wine taste better by telling you a story.

I'm sitting here looking at a bottle of Avalon Organic Botanicals Therapeutic Rosemary Glycerin Soap featuring 70% certified organic ingredients. This soap (about four ounces in a pump-top, green plastic bottle) costs approximately 30 times as much per wash as generic bar soap. Is it worth 30 times as much? Does it get me 30 times as clean? Does soap really need to be organic? Of course not. Yet I've found a bottle of this soap in the guest bathrooms of at least three friends' houses.

The Avalon experience begins in the store when you notice the elegant look of its bottles. It feels good to pick up the bottle. It feels good to know you can afford a luxury like this. It feels good to tell yourself a story about organic fields of rosemary. It's a nice lie to believe that you're giving something back to the planet by supporting this friendly little company.

Using the soap itself is nothing but a reminder of the way you felt (good) when you told yourself a story while buying the soap in the first place. The product is nothing but a souvenir of your trip to the store--and a reminder of the way you felt when you bought it.

My no. 1 hangout in New York City is a hard-to-find little coffee shop run by Vivian Cheng. The Soy Luck Club has fast, free Internet access, organic oatmeal cookies, soy shakes, and really good tea. It has comfortable chairs, a great staff, and just the right atmosphere.

Most people on the street walk right on by and don't even notice the Club. A few, though, pause, take a quick look at the menu and the layout and the sort of people inside, and then walk in as though they own the place. They've figured out--almost instantly--that this is their sort of place. The frame of Vivian's story matches their worldview, and they're sold before they even order anything.

How does she do it? I know Vivian well enough to tell you that it's not an intentional gambit. The luscious, pressed whole-wheat bagels with banana and soy butter aren't on the menu because she's trying to trick someone into thinking the place is healthy and funky. The bagels are there because Vivian likes them and is proud to serve them. The Soy Luck Club is authentic in every way because it reflects who Vivian is and what sort of place she'd like to hang out in. So how does she grow?

She could try to grow by persuading people who don't care about her particular ambiance and healthy foods and fluffy couches that this place is better than Starbucks. She could grow by persuading people to eat more soy so that they don't have a heart attack. Neither approach stands a chance. People don't want to change their minds.

Instead, Vivian is growing by reaching out to individuals who will embrace the story she's trying to tell. Vivian framed her story in a way that matches their worldview. A block away, the Equinox health club gives out discount cards to the Soy Luck Club. The assumption (a correct one) is that people notice a discount card if it's given to them by someone they trust. Even better, people who pay good money to work out in the middle of the winter are significantly more likely to want to believe in a story of healthy nutrition right around the corner. So it grows.

Of course, Vivian will really have a home run once her loyal customers start telling stories to their friends--friends who might not share the worldview but are eager to hang out at a place loved by their best friends. That's how Starbucks succeeded and how the Soy Luck Club will as well.

The principles behind creative storytelling are compelling, but what do you do when you have competition? How do you respond to competing stories in the marketplace? The most important principle is this: You cannot succeed if you try to tell your competition's story better than they can.

It's almost impossible to out-yell someone with the same story. Years ago, I gave a presentation to the Wal-Mart Internet team. They gave me a tour of their offices, which featured a huge banner that read YOU CAN'T OUT-AMAZON AMAZON. At the time, Wal-Mart was more than 100 times bigger than its smaller competitor in Seattle. If Wal-Mart was afraid to go after Amazon, what chance do you have against your entrenched competition?

This is the most difficult competitive lesson to learn. Marketers (and all human beings) are well trained to follow the leader. The natural instinct is to figure out what's working for the competition and then try to outdo it--to be cheaper than your competitor who competes on price, or faster than the competitor who competes on speed. The problem is that once a consumer has bought someone else's story and believes that lie, persuading the consumer to switch is the same as persuading him to admit he was wrong. And people hate admitting that they're wrong.

Instead, you must tell a different story and persuade listeners that your story is more important than the story they currently believe. If your competition is faster, you must be cheaper. If they sell the story of health, you must sell the story of convenience. Not just the positioning x/y axis sort of "We are cheaper" claim, but a real story that is completely different from the story that's already being told.

Woot.com is a modern Internet success story, with tens of thousands of subscribers and millions of dollars in annual sales. And yet woot doesn't advertise and has just a few dedicated employees. How did it do it? Woot sells only one item a day.

It is not trying to out-Amazon Amazon. Instead, it tells a very compelling story, and that story is easy to believe and easy to spread. Every day, starting at midnight, it offers exactly one product at a great discount. When it's gone, that's it. Come back tomorrow and see what's new. On a recent Thursday, for example, the company offered a set of Dell computer speakers for $14.99. The item was sold out by mid-morning. Woot is a business with a story that's easy to tell. And because the story is its and its alone, it has plenty of room to grow.

Mark Vadon runs bluenile.com, a site designed to suck the profit out of the jewelry business. He's doing that by substituting one story for another. "We want to be the Tiffany for the next generation," he says. He's already showing some success. Last year Blue Nile sold more engagement rings than Tiffany.

It's easy to misunderstand his success if you focus on the fact that he sells jewelry for half the price of the almost identical items in the famous blue box. But if cheap is what you want, you can buy cheap cheaper somewhere else. Cheap is not marketing. Mark understands that he can always be undersold. Talking about diamonds, he says, "You learn to appreciate them--where they came from, who cut them. Every one of these has a story."

Blue Nile sold $154 million worth of diamonds last year because--like Tiffany, a name synonymous with luxury and class--it tells a story that the buyer believes. Part of that story is about quality, part of it is about being smarter than the poor schmo who gets bullied into buying at Tiffany's.

The Blue Nile story is aimed at guys (the ones who buy engagement rings). The story is framed perfectly for their worldview. It says, "You're smart enough to buy the right diamond at the right price." Tiffany can't tell that story, and neither can the cheapest guys. Women hate the Blue Nile story because it suggests that Tiffany is selling an empty blue box for thousands of dollars. Men love the story for precisely the same reason.

What if you're entering a market where there is already successful competition and consumers have bought your competition's story? That means that your competition is telling a story that's working. To grow, you can't tell the same story to the same people (even if you tell it louder or with more style). Instead, you will find success by telling a different story to part of the community that shares a particular worldview that's different from the masses'. For example, Masa, the New York City sushi restaurant whose dinners start at $300 a person, went to people who liked eating out and people who loved sushi and told them a different story: "This is the best sushi in the world, but only for people who are willing to pay for it."

Until Masa showed up, there was a community of people who wanted to hear a story framed around sushi: This is convenient sushi or great sushi or a good value in sushi. This group was treated as a homogeneous group, sharing just one worldview: We like sushi.

Owner-chef Masa Takayama told a story to only part of that community. He addressed people who wanted to hear a story framed around "deluxe" and "best in the world." Some people in the "I love sushi" community heard his story and believed it. Other people said, "That's ridiculous." Masa was able to peel off enough people to create a success.

So what does it take to succeed? You must aggressively go to the edges and tell a story that only you could tell. Tepid, compromised approaches to storytelling--stories that will please everyone, even those who don't want to hear them--are likely to fail. Tell an authentic story, not a deceitful lie. Tell a story that is memorable and remarkable and worth listening to. Seduce your customers, because that's exactly what they want you to do. That requires ruthless selectivity and creative storytelling--in other words, lying.