(FORTUNE Small Business) – Intuit's not just about balancing your checkbook anymore. It's about taxes and accounting and payroll and, lately, an expanding line of industry-specific software for bookkeeping and business management, aimed smack at small--and not so small--companies. (Judging by Intuit's recent strong financial performance, the new approach is working.) FSB's David Lidsky and David Whitford caught up with Intuit founder Scott Cook at an Intuit product show in Manhattan, where all the latest varieties of QuickBooks were on display. The conversation scanned a wide range of business topics--how to pick a CEO, how to understand what customers really want, the changing world of small-business software, the essential goodness of Midwesterners--but it started with Cook's revealing that he had recently packed his 14-year-old son off to boarding school and was thrilled that he had tried out for the football team. "He's never played football in his life," Cook said proudly. "He has my build, which is not built for football. He just didn't want to be bound by people's expectations of him, and by his past. He wanted to totally change his life."

Do you ever think about doing something like that? Playing football?

No. Changing your life, doing something completely different.

You know, in the late 1990s I wasn't happy with the way things were working at Intuit. I had a disagreement with the guy we had promoted to be the CEO [Bill Harris]. If I was ever going to leave, that would have been the time. But then we hired a new CEO [Steve Bennett from GE], and now the new ideas we're coming up with are just so much fun, so exciting. I spend my time looking in areas where we need to get closer to customers or produce change in our mindset or in our pace of innovation.

You have a title we've never seen a founder take before: chair of the executive committee.

I made it up. The committee has never met.

Never?

No. My job is to make sure the board's executive committee doesn't meet. The decisions are made by the management team, headed by Steve Bennett.

What were you looking for when you chose your new CEO?

We told the headhunter, Don't focus on technology. The person we want is unlikely to be in a technology company. Don't focus on someone who is an engineer or has an engineering background. We don't care whether he went to school or not, whether he has an MBA or not. We don't care if he has a financial background or not.

No finance, no tech, no MBA?

Yeah, because what we were looking for was a specific set of personal characteristics. We needed somebody who was a great leader whom great people wanted to work for and who could teach and grow new leaders. We wanted somebody who had taken an organization that had been performing poorly and turned it around. We wanted somebody who could move fast. We needed somebody who had had the experience of running a multidivisional company successfully. We needed somebody who, while not necessarily technical himself, was comfortable dealing with technical issues. Oh, and ethics. We needed somebody who was spotless-- perfectly clean. Our No. 1 value at Intuit is integrity without compromise.

Did you ever consider reassuming the CEO role yourself?

No. I don't have the skill set. Well, I've got the integrity one [laughs]. I move fast, yeah. But successfully manage a multidivisional organization? High performance? Do the leadership development, that sort of stuff? There are a lot of people better at that than I am, and we found one of the best of them.

How do you develop and nurture the kind of culture that can continue to innovate?

First you have to understand the customers intimately, deeply, from observing them working in their offices. The key is face-to-face, regular close contact with the customer. It's crucial. You can't do it fly-by-wire, you can't do it by remote control. It's just got to be full frontal contact. Otherwise you misunderstand their needs. There's a proverb that I teach people in the company. It goes something like "Empathy is not just about walking in another's shoes. First you must remove your own shoes." You have to get past your own blinders and biases and assumptions before you can see with clear eyes what's really going on. And building a culture where that is valued, where engineers want to do that, where that's what's known to be valued, is very hard. Most companies don't have that culture. A company has to be willing to stop believing its own beliefs and believe what it's hearing from customers. Then you've got to translate that into products that are such a breakthrough that they transform business, and people can't imagine going back to the old way.

What part do leaders play in the development of a winning culture?

You try not to be the oppressive founder. You want others to lead and not have to run everything by you. Another thing that Steve Bennett has brought and that we emphasize now is developing leaders and turning leaders into teachers. If you really want the organization to grow in skill and abilities, your leaders have to be teachers. And as part of teaching, you learn. We've just started on a long journey, and if we do it right, we can be the place that is clearly known to be the best at developing leaders. All the companies I know complain that they need more leaders. Then they try to hire them from outside the company. I think you should focus on building them yourself. At Intuit our first responsibility is to our employees. If we do right by our employees, they'll help us do right by customers. If we do right by the customers, then we'll do right by the shareholders. It's got to be in that order: You can't flip it. If you optimize for shareholders then you end up screwing the other two.

Are you the architect of the new initiative to tailor QuickBooks to specific industries?

Well, Dan Levin, senior vice president of the QuickBooks group, gets most of the credit. I had mentioned that in the late '90s I became a little less enamored with what we were doing. We had launched QuickBooks in '92. It was a huge success. When we launched, it didn't have all the features we thought it should, so we then set out to add new ones--inventory, payroll, a bunch of things. And each year we launched a new upgrade that would add new features, and that worked very well from '93 to '98. But the team fell into the habit of saying, "Oh, we'll just do one more upgrade and add more features, more features." And you start having declining returns.

When Dan came in, we discovered a larger sandbox--important problems that afflict small business--and we're only partway through solving those problems. I'll give you an example: I've spent the past 12 to 14 months working with accountants who use QuickBooks. The majority of accountants and small businesses run on our systems. But we didn't allow them to talk to each other. The data are going back and forth all the time, and one of the accountants' biggest problems is getting the data from their clients into their systems accurately. Well, we can solve that problem. But we weren't focused on it. Now we are. Every three months, four months, we have a new offering for accountants coming out, solving yet another problem that we have uncovered.

And we're creating a lot of other industry-specific versions. We now offer flavors of QuickBooks for construction, medical offices, nonprofits, professional services, retail, and manufacturing and wholesaling businesses. That covers 70% of our current customers. The more we look in those industries, the more problems we find that are unsolved.

For a guy who grew up in a suburb of Los Angeles, you seem to have a lot of connections to Wisconsin. What's that about?

My parents came from Wisconsin. My wife's from Wisconsin, my vacation home is in Wisconsin, and the CEO we hired is from Wisconsin. My former business experience was in Ohio, at Procter & Gamble. I'm fundamentally a Midwesterner. So we have at Intuit what you might call a strong Midwestern ethic, which is all about integrity.

During the bubble I gave a talk to an entrepreneurs' group in Madison. They were feeling pretty dowdy because the world seemed to have passed them by. I closed by saying, "Don't think for a minute that you guys can't massively succeed in business because you happen to be in a state that doesn't have a Silicon Valley. I don't have a lot of belief in Silicon Valley ethics. These are the right values, this is what wins in the long term. Don't get distracted by all these headlines coming out of California. Don't lose your values."

Do you keep track of your personal checking account on Quicken?

Yeah, I use Quicken. So does my wife. She does our joint household checking account. And I do my personal checking account.

What's the balance?

Aaaah, I have enough slop in the account where I don't have to reconcile. I don't keep track of income. I basically use it to track expenses for tax purposes.

We see. So you're hoping to grow old in the business of accounting software?

Ah, well, compared to the alternative--dying--I'd rather grow old.

I guess the alternative is moving to Wisconsin. No, this is more fun. Life is grand.