(FORTUNE Small Business) – After more than a decade in the restaurant business, Robert Basham, Tim Gannon, and Chris Sullivan decided there was little satisfaction in working so hard for no share of the profits. Throughout the 1970s and early 1980s, Sullivan and Basham drove the growth of Bennigan's, Chili's, and Steak & Ale, while Gannon worked his way up through the kitchens of a few independent restaurants. "If we wanted an environment where there was ownership at the restaurant level, we had to create it ourselves," Sullivan says.

He and Basham decided, over beers at a Tampa jazz club, to launch Outback Steakhouse. Gannon joined soon after, and the first location opened in 1988. The idea was to sell high-quality steak at affordable prices in restaurants decorated with the latest American craze--all things Australian. (Crocodile Dundee had come out a year earlier.) General managers would be able to collect 10% of their restaurant's profits. If the concept proved successful, the owners hoped eventually to open four southern Florida locations.

Today Outback Steakhouse International is the third-largest restaurant company in the U.S., with $3.2 billion in revenue, 1,175 locations, and eight brands in 20 countries (the latest, Paul Lee's Chinese Kitchen, debuted last fall). In March, Sullivan and Basham, both 57, stepped down as CEO and COO, respectively, to become chairman and vice chairman of the board. (Gannon, 56, remains senior VP.) From Outback's headquarters in Tampa, the three talk about how they almost didn't get their venture off the ground.

CHRIS SULLIVAN: All three of us met at Steak & Ale in the 1970s. I had initially thought I would go into banking and did some interviews, but I looked at that environment and thought, This isn't what I want to do. With the restaurant business, however, you're putting on a show every night. It's exciting. I was a general manager at Steak & Ale and Bennigan's, and eventually worked my way up to president.

ROBERT BASHAM: I got into the business working in my brother's restaurant in D.C. Then a new place called Steak & Ale opened in Alexandria, Va. I'll never forget this--some produce guy came in and said that the managers of that chain could make $25,000 a year! That was in 1973. So I went out there and had dinner--it was so fun, so different. They had a salad bar! I started as a manager trainee.

TIM GANNON: In the late 1970s I left Steak & Ale, where I had been a manager, and started working in the kitchen at a small restaurant in New Orleans. I was running it: 3,500 square feet, $3.5 million in sales per year, all entrées under $10. That was my test--on my own away from a big corporation. Could I make this small restaurant tick? Chris visited my kitchen when he was in the area, always curious about what I was doing, where I was going as a chef.

I learned things in New Orleans that resonated throughout my career. The first was that you have to feel the pain of loss to achieve great success. At one restaurant I made a promise to my workers that I would take no salary, just 20% of the net profits. And one week we lost money, so I wrote a check for $1,800 from my personal checking account to cover their salaries. That check was a huge learning curve and was so helpful when we designed the compensation package for Outback, in which managers and partners get paid a percentage of their net profit.

CHRIS: In June 1987, Bob and I sold Chili's to start something new. We tried to get the Blockbuster franchise for Florida, but it had already been awarded. Hooters started here in the Tampa Bay market, and we had some conversations about developing that concept around the country, but it fell through too. So Bob and I said, Well, let's do a casual steakhouse. We thought there was an opportunity.

TIM: I got a call from Chris--they wanted me to develop the food. And they did something that was different from any other normal partnership: They offered me an equity position. I had no money back then, no capital, but I got to pour my heart and soul into my work. I would get to take the past ten years of working with five-star chefs and apply that to a casual-dining theme.

BOB: So Tim comes to Tampa with $37. I offered to let him stay a couple of days, but it ended up being four, five months. Obviously he didn't have a kitchen--the first Outback wasn't built yet--so he used mine. He starting pouring out all these recipes. It was tough cleaning up after him.

TIM: At that time steakhouses were pretty boring. I think Ruth's Chris was the only place adding any seasonings to steak, and that was just salt and pepper. I told Bob and Chris they had to let me bring what I learned in New Orleans: bold spices, beer batter, things like that. But we got down to the deadline of printing a menu, and we still didn't have a theme.

CHRIS: Western steak places had been so overdone. It was 1987--what were Americans into? We started flying to Australian-owned businesses in the U.S. to pick their brains.

ROBERT: There was this little Aussie restaurant in California, and I knew that some of the stuff on its menu wouldn't have very wide appeal. What was interesting, though, was the look of the place. I took some pictures and duplicated some of the décor this guy had on the wall. That was the theme: Aussie mood, awesome food.

TIM: We opened in March 1988. The first few months were scary as hell. If we hadn't called people up on the phone, no one would have come to the restaurant. We didn't have big dollars behind us. I mean, the initial investment bankers turned Chris and Bob down--even doctors turned them down, and they invest in everything! The money came from relatives.

BOB: We did $8,000 in sales that week, the slowest week that Chris, Tim, or I had experienced in the industry. It was pitiful. The second week we did $11,000. We're going, "What are we going to do here?" The restaurant was in a very hard-to-find location in South Tampa--not on a main street--and two restaurants had already failed in that spot.

TIM: At that time Chris asked me a pivotal question: "Did you get the food right?" I told him it was perfect. "Then we have to let people know," he said. This was Chris and Bob's first venture without a branded name. No one knew what an Outback was yet.

BOB: Outback had the smallest marketing budget I had ever worked with. Previously, with the large corporations, we had a safety blanket. There was really never an entrepreneurial or personal risk. Here, we were reaching in our jeans pockets to make payroll. It created a sense of urgency; we had to be creative. We could not afford TV, so all we had was radio.

TIM: I ended up cooking at 6 A.M. outside a local disc jockey's hallway. I fired up a stove and cooked a Bloomin' Onion live--and this is after working all night.

BOB: Chris and I were live on the air with the deejay, Tim was cooking, and Trudy Cooper, another of our principals, was running the food up and down the stairs between breaks.

TIM: To this day that deejay is one of our best customers. A few weeks later a review came out in the St. Petersburg Times. I went outside to grab the paper at 6 A.M. It said, "These are chain-restaurant guys doing a nonchain restaurant--hats off to them for getting the food and service right." She talked about everything, from the croutons to the quality of steak to the soup to the dressing with Dijon mustard--I mean, she totally grasped what we were doing. That came out on Friday. That night we had probably the most exciting moment in our early days: We had our first line.

BOB: Chris and I didn't take a salary for the first year. I knew our product was so good that we'd get there, but it took longer than we thought. This wasn't the typical situation we had seen with corporate restaurants--when we opened a new one of those, people were lining up to get in. For Outback we learned to execute day in and day out, one meal at a time, one customer at a time. Looking back, it was a blessing that we started so slow. It allowed us not to make a lot of mistakes--by the time we finally got busy, we were prepared for the volume. If we were busy at first, we might not have gotten that review.

TIM: It was slow going until we opened the third Outback, ten months later. That's when the first and second restaurants clicked. The original vision was to do only four restaurants, but Chris came to me and said, "The comments I'm getting on this food are stronger than any I've heard in any restaurant I've done."