(FORTUNE Small Business) – ZAIGER'S GENETICS Founded by Floyd Zaiger

Sometime in 2005 you may walk into a farmers' market and find a fruit that you have never seen before and may not be able to pronounce: the peacotum (it rhymes with "sea bottom"). With the yellow flesh of a nectarine, the texture and juiciness of a plum, and the velvety overcoat of an apricot, the peacotum tastes more like fruit punch than any of its parent breeds and is the first three-fruit hybrid headed for the mass market.

Floyd Zaiger, a Modesto, Calif., inventor and the most prolific fruit breeder in the world, created the peacotum. His family-owned company, Zaiger's Genetics, has patented more than 200 new varieties of fruit, all through conventional pollination. (Despite the company's name, Zaiger performs no genetic modification; instead he accelerates the natural selection process through hand-pollination.) Among his achievements, Zaiger, 78, has found a way to reduce the acid level in peaches, give unripe apricots an appealing red blush, and make white nectarines—previously a mushy mess—firm enough to be shipped around the world. (Not sold commercially until 15 years ago, white varieties now make up 22% of all nectarines in the U.S.; Zaiger created most of those breeds.) Another of Zaiger's successes is the pluot—a plum-apricot hybrid that is available in purple, yellow, or green with red polka dots and now constitutes about one-fourth of the plum market. (Never heard of a pluot? Ask your kids. Some are sold under the name "dinosaur eggs.")

For his accomplishments in creating new fruit, Zaiger has been recognized around the world. The King of Morocco invited him to recommend selections for planting, and the French government named him Officier in the Order du Mérite Agricole (one step up from knight). "He's the father of exotic fruit," says Paul Buxman, a farmer who grows many Zaiger varieties at Sweet Home Ranch, a 55-acre spread in Dinuba, Calif. "He's a biological inventor who treads where most scientists don't think about going. He'll be in the encyclopedia one day."

Zaiger may seem to be following an odd pursuit, but there's big money in new fruit varieties. "On the retail end, everyone is looking for something different," says Eric Christensen, a citrus grower and the owner of Rising C Ranches in Reedley, Calif. While the traditional staples—bananas, apples, grapes, and pears—are still the biggest sellers, fruits that were once unheard-of in the U.S. now bring in $100 million each year, or more. According to the Produce Marketing Association, based in Newark, Del., mangoes sell about $280 million a year, and papayas have grown to a $96 million business. Although too small to be tracked by the PMA, other specialized items have started appearing on the shelves recently: the thin-skinned, high-juice Meyer lemon; the easy-to-peel seedless Delite mandarin orange; and the 70% apricot, 30% plum aprium (this one, a Zaiger creation, saw consumer demand jump after Martha Stewart made aprium jam on her TV show).

The industry's most famous success story, though, is the kiwi. Formerly called a chinese gooseberry, it was imported from New Zealand in the 1960s, and today it's a standard produce item that last season rang in $91 million in sales—double that of the apricot. Even more impressive is its far-reaching acceptance. While many shoppers will often confuse the papaya with the mango, or the mango with the guava, you'd be hard pressed to find anyone who couldn't identify a kiwi.

Yet of all Zaiger's creations—including two others entering commercial testing in 2005: the nectaplum (nectarine and plum) and the white aprium—it's the three-in-one peacotum that stands out as the biggest recent advance in fruit technology. "The peacotum is most unique," says Robert Woolley, owner of the Dave Wilson Nursery, a company that grows and sells Zaiger's creations. "It can go kiwi."

The path to the peacotum began not with a "Eureka!" moment but with a few questions and a large dose of natural curiosity. Floyd Zaiger grew up picking strawberries on a migrant labor crew before catching what he calls the "dreaded disease of fruit breeding." (He says his obsession earns him little money; his wife, Betty, says it gave him ulcers.) In the 1950s, Zaiger apprenticed with Fred Anderson, a fruit breeder, now deceased, who was known as the "father of the nectarine." After a few years with Anderson, Zaiger struck out on his own in 1959, first experimenting with ornamental plants and eventually graduating to fruit hybrids—trying to create something bigger, firmer, prettier, or tastier by mixing peaches with nectarines, nectarines with plums, plums with cherries, and so on. Zaiger took many of his cues from nature—these crosses can happen in the wild, courtesy of bees. In the 1970s he discovered a fuzzy plum in the middle of a tree of smooth plums that he had crossed, and he became bent on replicating it. That would ultimately lead to the peacotum, but the project would take him almost 30 years.

The first step began with choosing the best parents from Zaiger's bank of 2,200 breeding-stock trees (in this case a peachcot and a plumcot—apricot-peach and apricot-plum hybrids he had already successfully created). Regardless of which parents he selects, Zaiger can never guarantee that the hoped-for characteristics will appear. The permutations are endless; some versions of the finished product could turn out fuzzy, round, and bitter, while others are smooth, heart-shaped, and delicious. "It's like playing cards," Zaiger says. "The numbers are always there, but you're not sure when they'll come up."

For all his experiments Zaiger uses hand-pollination, which requires removing the stamen from one flower—preventing it from self-pollinating and contaminating itself—and applying the pollen of another with an eye-shadow brush. (Zaiger previously tried pencil erasers, but he found they wasted too much pollen; mini-paintbrushes proved too expensive.) When he gets a fruit hybrid he likes, Zaiger plants its seeds in his 40-acre seedling orchard, where the young trees will remain for between one and three years. The plants with the most promise are moved to a secondary orchard for further evaluation, and the rest—some 50,000 a year—are scrapped. "You have to be ruthless," says Zaiger. He won't know for another three to five years whether he has something with commercial potential.

While the peacotum looked attractive from the beginning, the early versions tasted so awful that Zaiger almost had to dare people to try them. "It was so nasty it would lock your jaw," recalls nursery owner Robert Woolley. "Astringent and sour, with a smell that would hang with you like rotten salami." Zaiger went back into the lab to fix the flavor, but he had to try thousands of recrosses before he got the result he wanted.

The process is labor-intensive, but Zaiger's company is a family business in which everyone helps out. Betty Zaiger, 73, keeps the books; the Zaigers' two sons oversee the farming, with Grant, 48, running the embryo lab and Gary, 53, evaluating planted selections. (The latter task requires so much walking around the 160-acre property that Gary says his flat-footedness has gotten worse.) The Zaigers' 51-year-old daughter, Leith Gardner—yes, she sees the humor of her married name—is general manager. All family members are responsible for coming up with names. The peacotum was named so long ago that family members can't recall who came up with it—most likely an uncle. The first choice was "pub plum," named for the fuzz on the fruit, scientifically known as pubescence.

Zaiger isn't above trying some outrageous tactics when he feels they might help. He once zapped some of his plants with an X-ray machine to see if he could cause their mutation. Another time he stormed into his greenhouse with a hammer and pounded some of his buds—hoping to shock them into spontaneous change. (Neither experiment worked.) Yet some of his ideas have become standard in the industry, such as growing his breeding trees in movable containers, so they can be easily moved out of greenhouses in good weather.

After the Zaigers invent a fruit, they have almost nothing to do with selling it. The Dave Wilson Nursery, based in Hickman, Calif., a third-generation family business, is the sole licensor and primary grower of Zaiger's varieties in the U.S. It grows nearly a million at a time, which it sells to farmers for their own orchards. The farmers eventually bring the fruit to market. They pay the nursery about $5 for each tree, plus a royalty of $1 to $2.25, most of which goes back to Zaiger. It's not unusual for him to wait more than 15 years to make money from a new variety. After nearly three decades of working on the peacotum, Zaiger hasn't seen any revenue from it. "It's not get-rich-quick," he says.

Because of those economics, his company spent about 30 years in the red, though it is now profitable. He declined to disclose financials, but a back-of-the-envelope calculation would put his annual revenue somewhere between $1 million and $2 million, nearly all from royalties. It costs about $1 million a year to run the operation. He would probably do better if the fruit business were not so prone to intellectual-property theft. The National Licensing Association, based in Seattle, estimates that about one-third of patented fruit trees in the U.S. are planted and grown without proper licensing or payment of royalties. That doesn't count what happens overseas. Zaiger has found his plants in Chile, China, Iran, and Russia. In some countries, Zaiger says, thieves are sent into orchards to steal budwood (a branch from which more trees can be grown). Once Zaiger caught a visiting grower taking a piece of his cherry budwood; another time someone entered the property while the family was on vacation and dug up two full-grown pluot trees.

While the peacotum, as far as the family is aware, has not yet been stolen, it does provoke its own controversy. Craig Ledbetter, a research geneticist at the USDA Agricultural Research Service in Parlier, Calif., calls the peacotum a "fantasy," saying it is extremely rare for a true hybrid of that nature to yield fruit, especially fruit of any quality and quantity. That skepticism likely stems from a dispute a few years back, when the industry's marketing association, the California Tree Fruit Agreement, hired the University of California to perform a DNA test on the pluot, which found that the so-called hybrid didn't contain any apricot traits. Zaiger says the test was not conducted properly. Tests in Spain have corroborated his claim, but the situation is unresolved.

After 30 years of work and 20,000 crosses, there are six commercially viable selections of peacotums. (One has a dark-maroon skin with a yellow flesh, and another, shaped like an old-fashioned wooden top, has red and yellow skin.) A few selections have been released to farmers for an experimental trial, and some could be in supermarket produce sections in three to five years. "It has the flavor to become a winner," says David Karp, a writer specializing in fruit. "The Zaigers have a track record."

Right now the next generation of peacotums is lying nascent in the trees, waiting until June to ripen. When that happens, farmers will come to squeeze and taste the fruit and decide whether they want to buy trees. Some of the peacotums will be trucked to local farmers' markets and sold to consumers. In the meantime, the Zaigers are working on crossing their newest hybrid: a peacotum and a cherry. Any guess as to what it will be called?