(FORTUNE Small Business) – Scott Cook was in his early 20s when he and his wife, Signe, arrived in Silicon Valley at the peak of the software explosion of the early 1980s. Sitting at their kitchen table while Signe wrote out checks, Cook had an entrepreneur's classic "eureka!" moment: Why not create software that would handle household finances? But when Cook tried to get funding for what would become a success story synonymous with the '80s and '90s, he ran into a brick wall remarkably similar to those of today. Ultimately--and in fact rapidly--Intuit broke through both financial and psychological barriers, barreling through recessions, with a stock price that went from a split-adjusted IPO day price of $3.33 to its peak of $90 in January of 2000. Today Intuit products such as Quicken dominate their markets, but the company faces challenges reminiscent of its first decade.

FSB talked with Cook, now 49 and the chairman of the board's executive committee. Still involved in his first mission, innovation, Cook talked about his early days: how friends and networks were crucial to Intuit's first funds, how it almost missed its biggest market, about the day he learned what "bankruptcy" meant, and how he realized that he'd hit his own Peter Principle moment. Following are the edited excerpts:

For an entrepreneur, you were pretty corporate at the start: Harvard MBA, job at Procter & Gamble. Were they helpful, or a detour?

I was inspired by some of my grad-school classmates. Some turned out to be incredibly helpful with advice--and ultimately as investors. But it was at P&G that I got the tools without which Intuit wouldn't be here. You have to remember what software was like in 1983; computers were these marvelous devices that didn't help anybody but the people in white coats who ran them. There wasn't a consumer in the lot.

So P&G taught you its mastery of consumer marketing?

Right. The culture of customer-driven innovation: learning from customers and driving the product and the organization to win customers.

What made you leave?

I felt my learning curve flatten, and, frankly, I hated my boss. More than anything, he drove me out of the company. He was the opposite of a great manager--he tried to do your job for you. I learned how not to manage. But there were some great bosses there too.

Was it that your inner entrepreneur was surfacing? What's your business personality?

There were guys in my business school class who said they couldn't see me rising up the ranks of a corporation. When I left Procter & Gamble, I moved to California and became a consultant. I'm a pretty optimistic person. But I'm also a very conservative and worried person.

Were you a computer lover from the start?

In high school I programmed computers--an IBM 1620 Q--to run math formulas. I loved making computers work for people. There's a restored 1620 in a museum in Silicon Valley. People's eyes just light up when they see it. Later, on drives from Cincinnati up to Wisconsin, [Signe and I] would talk about how to make the awesome power of computers benefit the bulk of Americans, not just the few. How you could shop on a computer...that kind of thing. There were always problems [with the ideas]: Either the technology would not do it, or people wouldn't want it.

While you were working as a consultant, you had a moment of discovery. What was it?

One day my wife was complaining about doing the bills. It struck me: Bing! Here's something everybody has to do: pay bills. There are problems to be solved, and computers are pretty good at doing the essence of financial work. Why isn't there something to make people's financial lives fast and easy?

Were you the first to see this market?

No, there were products out there. We were about the 25th company to build personal finance products, including Home Account, Dollars & Sense, and Andrew Tobias' Managing Your Money. I bought the leading product expecting to find "Oh, they've solved this problem already." That's what was really enlightening. It was horribly slow and hard to use. They were all terrible, but they sold well. But we were the first software company, to my knowledge, that did consumer testing.

That's hard to believe.

Well, if you go back to software as it was in 1983 when we started, it was generally products designed by engineers and sold to industrial companies. We were building a consumer product. It turns out that the disciplines to sell to corporate customers were worthless. So when the product was half-built, we had groups of housewives that we recruited working with us in our labs. That's commonplace today, but we probably did it five years before [others].

So the results told you that you had it down cold?

We blithely assumed we could make this a hit from day one. We expected to be able to get big venture money. This was during the huge software bubble. Even truly stupid ideas, truly bad companies were getting money. We had our product ready for demo in 1984, but in '84 the market collapsed. I had been working as a consultant at 3000 Sand Hill Road in Menlo Park, Calif. [home to dozens of VCs]; not one of the venture capitalists in the building would invest. Investors had realized they didn't know what they were doing [in the software market].

Sounds familiar. But maybe you should have gotten cash first, then developed the product?

Sure, if you could predict the future. But we had a deeper problem. We were a paradigm change: a product for consumers that was truly easy to use. This happens with some of the ideas that are the most dramatically different--they're thought to be loony by informed experts ... I don't think Steve Jobs got VC money in the early days; in the early days no one invested in Microsoft. The change has to be led by a success no one would have dreamed of.

But how did it feel to have the door slammed in your face?

It's more genteel than that. They just never call you back, or they don't take your call, or they pleasantly sit there and listen and come up with some superficial reason not to fund you.

So you never got VC funds?

No. The finance guy I brought in, Tom LaFevre, said, "Let's go talk to some rich people." I said, "I don't know any rich people." He said, "Well, I know two." Because they knew him, they invested a total of $151,000. That was just enough to keep the doors open. But we were looking for $3 million. We had to scale back our plan tenfold.

How could you switch gears so massively?

We couldn't spend any money on marketing. Instead of selling the product ourselves, we started selling it through banks on the suggestion of another friend I knew from consulting, the president of Wells Fargo bank.

But you had another dry spell before you got other banks to sign on.

In March 1985, Tom LaFevre told me, "We're about out of money. We have two weeks of cash left. Let's go get a pizza, and I'll tell you what bankruptcy is like." It was pretty ugly. We stopped paying salaries, we returned our rented computers and rented furniture, we stopped paying bills except for the phone and a few others. Three people left; we had four working without pay. My marriage almost broke up. The worst thing was, we didn't know if we'd ever get any money. And it was my job to sell the banks. I had failed. But I kept doing the same thing. Finally, in September, I got another eight banks. I started signing a bank a month.

Was there a moment when you knew this company was going to make it?

It was when we bypassed all our prior competitors [in late 1986]. It happened so fast, the late '80s just blew by.

When and why did you start growing by acquisition? Did that feel natural?

It didn't initially. For the first eight years of our company, we never bought anything. The first acquisition came when we needed more top engineers because we had so many great ideas to produce. We found a company that made accounting software and was led by two great engineers (Craig Carlson and Dan Wilkes) who were having trouble selling the product they made. We bought the company to get the engineers; they're still with us. We've been acquiring companies since 1991. And we've probably bought 20 companies.

How did you come up with your company's second product, QuickBooks?

We were so busy keeping up with orders that we didn't even see it. It's a story about what makes entrepreneurship so wonderful. It all happened by accident.

You don't take credit?

Well, we built this as a consumer [home use] product. When we surveyed our customers, half of them--48%--claimed to be a business. I ignored it; I thought, That must be a mistake. Then we did the same research a year and a half later: 49%. I ignored that. It was only later that we got it.

How could you miss it?

We had thought, Why aren't they buying accounting software? In a nutshell, the answer was the vast majority of small businesses don't have an accountant on staff. They don't know a debit from a credit; they think "general ledger" was a World War II hero. Yet nobody made a product for them. Again, it's the power of paradigm. It makes you twist and misinterpret it to see what you want to see. The best business book I've ever seen is [Peter F.] Drucker's Innovation and Entrepreneurship. He ranks the great sources of business ideas, and the No. 1 breakthrough is surprises. But you have to be able to see them.

Has that same blind-spot syndrome afflicted you inside the company--or you personally?

In 1993 I realized I was holding the company back. I could feel in my gut that there were a lot of duties I had to do that I didn't enjoy, nor was I good at doing them. After a while I could tell some of my people thought I was lousy at them. One of them must have drawn the short straw. She took me to lunch and told me. Very diplomatically and very bluntly.

Was this about changing from a founder of a small company to the head of a big one? What's different?

The biggest differences are in what you do every day. With seven people, my hands touched the product every day. Now if my hands touch the product, it's a mistake on my part. We have so many great people, and it's their job to touch the product. And touch the customer. [Ultimately] I went to the board and said, "I'd like to hire a CEO with the opposite skills of mine." This was one of those moments when I got a lot of advice from one of my MBA classmates. He had hired CEOs before, and he had a kind of template--how to use headhunters, timing, how to talk to your people about it. He even wrote down a little [hypothetical] calendar: Here are the dates for how long this [search] should take. By November or December, [the new CEO] should have his or her feet under the desk.

Now you're chairman of the board's executive committee. That doesn't sound like a day-to-day job. What does it mean?

I don't worry about my title. Influence in an agile organization is earned by your contributions. Intuit is my full-time job. I help us focus on the right long-term objectives, and goad and encourage change.

How?

By making sure that people have a safe haven where they can speak their radical ideas and get an audience...to encourage things that the rest of the organization might not understand yet. Entrepreneurship is really much less about the invention of new ideas...and more about questioning assumptions.

What's the biggest danger to Intuit right now? Some critics say you are spreading yourselves too thin. Or is it the economic slowdown?

No. Profits last year [ended July 31] were up 42%, revenues up 15%. [Editor's note: Cook is referring to proforma operating income; Intuit had a net loss for the year of $82.8 million due mostly to losses on securities and write-downs on acquisitions.] Intuit has felt some pressure from the economic downturn, but not nearly as much as other companies. Nearly half of our revenue comes from tax-related activities. You've heard that "only death and taxes are certain," and the certainty of taxes makes for a large and growing business for Intuit--and one with relatively low volatility. Our biggest danger would be if we failed to innovate. Our biggest business is providing solutions for small business people. And there is so much need there. The biggest tragedy would be if we somehow failed to innovate.

Finally, any plans do something different soon?

No. I'm not going to do anything else, because I'm having a great time, particularly now; the last 17 months we've had Steve Bennett, who we hired as CEO from GE. He's a gifted leader. And I'm having more fun now than I did. I can innovate, and he's able to take the innovation and figure out how to staff, resource, and get energy behind it.