David Birch doesn't remember where he was at the time, in his office at Massachuesetts Institute of Technology or at Cognetics Inc., the small (six employees) company he founded in 1983. It doesn't matter. What matters is that he had scarcely finished addressing the Federal Express envelope when the Federal Express truck driver appeared at his door to take delivery. David Birch marveled. Academic researchers do sometimes marvel; so do the chief executive officers of growing businesses. But rarely do they take the time to examine the marvel close up. That is what David Birch did. He asked the driver if he might go out with her one day, on the route, just to see what her job was like.

Jobs. Birch first made a name for himself by studying jobs. In 1979, he published a paper called "The Job Generation Process," which instantly propelled him into that exceedingly small group of economic researchers who manage to discover something that is simultaneously true, novel, and very important.

He discovered that a large proportion of the new jobs being created in the United States were not to be found where economists and policymakers had habitually gone to look for them. Jobs were not being generated by the celebrated Fortune 500, not even by the distinguished Fortune 1,500, but by small businesses and by businesses that had been small only a few years ago.

David Birch's paper jostled public perceptions of the economy as no academic study had done in decades.The effect was like what would happen if all the meteorologists in the country were suddenly to abandon their obsession with rainfalls and cloud covers and start talking about soil temperatures and water tables. Small business, abruptly, was it. What it was -- apart from being a good, a promising, an exciting thing -- no one knew. But subsequent studies by David Birch enlightened us. He laid out the odds of entrepreneurial success, plotted the trajectory of an entrepreneurial career, prescribed the tests and measures of an entrepreneurial ecology. He also won fame -- speaking engagements, the solicitations of governments here and abroad, a book contract, and interviews.

We interviewed Birch at his Cognetics office in East Cambridge, Mass., one of the fastest-growing entrepreneurial environments in the world. Cognetics, however, was leaving East Cambridge for North Cambridge. The old furniture factory it had occupied for one and a half years was about to be renovated. Boxes of papers were piled up against the walls, technicians were disassembling Cognetics's engine, a minicomputer, while the fuel of the enterprise, reel after reel of data, billions of bits of it, was being carefully stored away for removal to the new office.

Birch is professorial in the Cambridge manner -- chinos and tweed jacket, sensible shoes, and a button-down shirt. Once a year he and his family -- his wife (a kindergarten teacher) and two children - go up to New Hampshire to bring down the wood, seven cords of it, with which they heat their house all winter. He is a handsome man, 47 years old, and as fit as a former athlete should be. He spoke to us while sitting in a fawn-colored recliner, very much at ease, laughing sometimes, delighted always, sharing his discoveries.

INC.: You have been studying small businesses for a good many years now; so let's suppose that a friend of yours walks into your office one day and tells you he is thinking of starting a business. He would like to know what to expect. What could you tell him?

BIRCH: Well, first of all, I'd have to know what kind of business he was thinking of. There are really two classes of small business, you know: entrepreneurial businesses and what I call income-substitution businesses. The latter are by far the most common; they make up something like 80% to 90% of all small businesses in the country. They might be pizza parlors, or real estate brokerages, or produce stores. I call these "income-substitution" businesses, because rather than working for a company, you work for yourself. Your purpose is not to create or grow anything, apart from the act of birth itself. Your purpose is to generate an income that will support you and your family. You don't dream of having 2 stores next year and 4 stores the year after that and 50 stores the year after that -- you just don't think that way, it doesn't even occur to you.

INC.: OK, but let's say your friend wants to go into an income-substitution business. What are his chances of making it?Not great, right? We've heard that 85% of all small business ventures fail.

BIRCH: It's false. Absolutely wrong. I don't blame you, though; I heard it too, when I first started looking into these matters and I tried to find out where it came from. I think what happened was that people took another statistic -- that 85% of the businesses that fail are small businesses -- and twisted it. Of course small businesses do fail, the income-substitution ones as well as the entrepreneurial ones. Failure is an essential part of the system. But it's not anything like the lambs-to-the-slaughter affair that the 85% figure suggests. They start out, these new businesses, and within the first year 20% of them are gone, vanished. Then in the second year another 15% are gone, in the third year another 10% and so on -- the curve flattening out. In other words, the chance of your failing in the first seven years in a new business in this country is closer to 50%.

But notice that I said "gone"; I didn't say "failed." The curve doesn't tell you what happened to these people. They might have just quit, nothing lost, nothing gained. Or they might have lost; enough to wound their pride but not enough to go through bankruptcy. Or they might have gained and closed their business with more chips than they had at the beginning -- enough, at leat, to buy a condo in Florida. In fact, we know that out of the 550,000 business closings each year, only 15,000 or so are bankruptcies. That's not a slaughter. I think that's a huge success story, frankly.

INC.: And what can you tell us about the entrepreneurial business?

BIRCH: Yes, well, I could tell him what to expect, too. And it would be a very different sort of life from that of an income-substitution business, that's for sure. For one thing, he would be in the minority -- only 12% or 14% of all small businesspeople are what I would call entrepreneurial. They're the INC. subscribers, the people you're reaching in your magazine "for growing companies." They view growing a corporation as an art form. It is a way of life -- as opposed to a way of making a living. They know, from the minute they start something, that if it isn't going to grow 10 times bigger, then they've failed and it's time to start something that will grow 10 times bigger. They aren't in it for the money, not many of them anyway, not primarily. They're in it for a very complex set of reasons that revolve around the enormous satisfaction they get out of creating something.

INC.: And what sort of world is your would-be entrepreneur getting into?

BIRCH: Turbulent, to put it mildly. The entrepreneurial environment is constantly changing, and at an accelerating rate, and in all directions at once. And what counts is your ability to sense what's going on in that confusion, make sense out of it, and turn it into some form of corporate activity that is profitable. It's very, very difficult -- like walking a multi-dimensional tightrope every minute of the day.

INC.: Sounds like lambs-to-the-slaughter again.

BIRCH: Actually, it's a lot more fun than that -- at least for those who are good at it. Like a roller coaster, it's not for everyone, but thrilling for some.

INC.: Is that what an entrepreneurial career looks like, if you graphed it? Like a roller coaster?

BIRCH: Very much like it, although I prefer to think of it as something more life-giving. In the paper we wrote in 1981, "Corporate Evolution," I call it a pulsation model.

[Birch goes to the blackboard and draws a swooping, soaring line with lots of peaks and valleys on a revenue/time axis.] Most people, when they see this, shake their heads. They're appalled. I mean, if you ask most people what happens when you start a business, they will tell you that, well, it takes off. . . .

[At the blackboard again, he draws a long flat curve through the pulsation waves.]

Then it grows -- big or little, it doesn't matter -- then it sort of plateaus, then gradually declines, and at some point stops. That's the life-path of most companies, as most people imagine it. And in fact, if you take the experience of a thousand randomly selected companies averaged, that's pretty much what you would find happening to them. But if you were to ask what was the experience of the individual growth company, or would-be growth company, then what you find is this, enormous pulsation of peaks and troughs.

INC.: From your graph, with its peaks and valleys, it looks as if the companies that are experiencing rapid growth today are the most likely -- statistically -- to experience decline soon after.

BIRCH: Precisely. Let's say you can handle the debt/equity problems that rapid growth brings along; the cash flow problems, the management problems, the hiring, the training, the deploying of your resources.

Let's assume you're good at all that -- even so, you're going to be in for some heavy turbulence. For just when you're on your roll, the marketplace will be changing right underneath you.There will be four or five people who will have caught on to what you're doing and try to catch up with you, copying you or trying to do it better. Which forces you constantly to come up with something better yourself.

Now the perils here are of two sorts: one, that you will fail to innovate; or, two, that you will innovate beyond your capacities. I can give you two examples. The first is a guy who has a high-tech company that has been enormously successful. He didn't just find his market niche, he made it. And he got on a terrific roll with one product. Then, when that tailed off and competitors rushed in, he came out with another product; and now he's got to come out with another, and another, and another. That's the way it is in his industry. In fact, that's the way it is everywhere in the most dynamic sectors of the American economy today.

But meanwhile, as he was turning out this series of innovative products, he was also working on a far-out line of research into another sort of product altogether. Well, for whatever reason, his staff on that project walked out on him last year. And I was very upset when I heard it, because the pressures on him to come up with something better and better in the other line may be just too great. He's in a field where the entry barriers to competitors are low, and where no one will ever get a monopoly on ideas. So the loss of his sideline staff could be fatal.

So that's one peril, the failure to innovate. The other was illustrated by a guy I met, of all places, in the White House Rose Garden. I was there to get an award, the Small Business Administration's researcher of the year, which was very nice, a great honor. Well, anyway, with me at the ceremony was this guy. He had got into coins, collectible coins, particularly gold ones, as I remember, and he developed a nationwide and worldwide market for certain kinds of gold coins that he knew about. He grew his company from 2 employees to some 260-odd employees in a four- or five-year period. Then, a year or two later, I read in The Boston Globe that suddenly he's back down to 3 employees. What happened? Well, apparently he said to himself: If I'm good at gold coins, then I should be good at all sorts of other collectibles, so I'll get into art, I'll get into all kinds of other things. Well, he didn't know as much about those other things, and when the price of gold went crazy his company fell apart and went all the way down to here, to 3 employees. Knowing him, I'll bet he's back up to 260 employees today.

Those are extreme cases, but a typical pattern. You get so involved in the roll you're on that you do one of two things. Either you think you can do everything and get way out ahead of yourself, or the world changes undernearth you and you find you haven't prepared for the next generation.

INC.: You're sitting here talking about research into the dynamics of the business marketplace. But you're a physicist by training.How in the world did you ever get into this line of research in the first place?

BIRCH: Well, I did start out in life as a physicist. I studied physics as an undergraduate at Harvard, and I worked as a physicist -- although really more as an administrator than as a designer -- for the unmanned space program at the Jet Propulsion Lab, for RCA on their missile detection project, and for NASA. That was in the early to middle '60s. Then I went to the Harvard Business School, where I got an MBA and DBA. But I've always been a physicist at heart, always looked at the world, the business world, as a physicist would. I remember as an undergraduate, I took some economics courses, and the hardest thing for me was to keep from laughing. I just couldn't take the theories seriously; they seemed so detached from the way businesses actually behave. They weren't like theories in physics: They didn't describe things very accurately, and they didn't seem able to predict anything at all.

So when I started out as a researcher -- this was at the Joint Center for Urban Studies of MIT and Harvard University, in 1973 -- I thought I'd approach the subject as a particles physicist might, looking closely at what individual businesses really do, the atomic matter of which the economy is built.

INC.: Where did you find the data on the "atomic particles"?

BIRCH: From Dun & Bradstreet. They thought we were absolutely crazy. What would anyone want with two- or three-year-old data? Nobody had every asked them for it before, so they were happy to lease it to us at a modest cost. But of course that was just the beginning. We spent about five years, from 1974 to 1979, going through the data, experimenting with ways to sort it usefully, devising filters and screens and tests, and developing some very sophisticated software for processing a very large number of records on a very small computer. We even became like D&B reporters ourselves, going out into the field, so that we could understand the process and the pitfalls of their data-gathering methods. We also had to sharpen some of their definitions -- they have been very helpful in this -- sorting out mergers and reorganizations from newly formed companies, for example.

INC.: So that is your databank. What have you got in it? How much?

BIRCH: I know what industry the company is in, where it is (down to the street address), who it belongs to, who its officers are, what its sales were, how many people it employs, when it started, whether or not manufacturing operations take place there, where its major offices are, and so forth. And for certain subsets of the list I can get the financial statement, the financial ratios, who their auditor is, and who their lawyer is.

INC.: What have you done with it? Did your "particles" view of the economy yield any surprises?

BIRCH: Right from the beginning. The first thing we studied was the question of corporate migration. Remember this was in the days of smokestack chasing, when virtually every state in the country was trying to persuade this or that big corporation to move its headquarters from North to South or East to West, while other states were trying to persuade them to stay where they were. Well, we did this study to find out what was really going on. What we found was that, yes, there is a lot of corporate movement, but within a pretty small radius. I remember getting a call one day from a journalist who said he was doing some research on Frostbelt companies who'd made the move south and were running into problems. He couldn't find any. I said, "That's because there aren't any." He said, "What about American Airlines moving to Dallas, and textile companies to the South?" And I said, "That's it. Those are the well-publicized examples, and that's it. That's all there are." He was dumbfounded.

INC.: When did you do the famous study of job-generation, where you discovered that it was in the small business sector that most of the new employment was being created? This was what first brought you to the attention of INC. readers.

BIRCH: We finished that study in 1979. But you know, the ironic thing about it, considering the battles that have been fought over it since then, is that the size-of-business factor in our analysis was almost an after-thought. We asked a lot of questions about where jobs were being generated in this economy -- in what industries, in what parts of the country, in old companies or new companies -- but the question of size was something we just put in, not really expecting anything. Then, just before I sent the report to the Commerce Department, I picked up one of the tables I hadn't paid much attention to and said to myself, "Look at that. The smaller guys are doing a lot."

INC.: And that was the beginning of a terrific controversy, wasn't it?

BIRCH: It certainly was. That whole period was quite a shock for me -- beginning, I guess, when I was asked to testify before a congressional committee and a congressman said to me, "That's quite an interesting study you've come up with, Dr. Birch.Why do you suppose the Commerce Department hasn't paid more attention to it?" That's when I began to realize that there were lots of people out there with axes to grind -- the small-business camp, the big-business camp, the deindustrializers and the reindustrializers, Atari Democrats and Labor Democrats, Fortune 500 Republicans and Main Street Republicans -- and all of them were pouncing on my data to prove some point of their own.

INC.: But surely you are perceived as being "pro-small business," whatever that means?

BIRCH: Exactly: What does it mean? When I report that 66% of all new jobs created between 1969 and 1976 were created in companies with 20 or fewer employees, does that mean that I want governments to fall all over themselves to help companies of that size? Certainly not. When I point out that in 1982-1983 the Fortune 500 lost 310,000 jobs, while the rest of the economy created 3 million, does that mean I'm blaming the Fortune 500 and praying for their doom? You'd think so, judging from some of the memos I've seen from officers of very big companies indeed, saying, "How can we spike the guns of this fellow Birch? He's damaging our cause."

I'm simply looking at some myths: the myth, for example, that little companies fail the minute they open their doors and that big companies are here forever. I'm saying that we should look at the facts of the matter, at the particulars, which show that the myths are very far from the whole truth.

INC.: A moment ago you said something about governments, how they shouldn't fall all over themselves to help. Does that mean that you'd like to see the state take a hands-off, laissez-faire policy toward the economy?

BIRCH: Not at all. I'm often asked whether I think that such-and-such a program is good for this-or-that industry or economic sector. And I give my opinion; some programs can make a difference one way or the other. But not much, and only incrementally over the long haul. By and large the role of government -- in the sense of this administration or that, this group of economic advisers or that -- is minimal in the performance of the system that I'm describing.

INC.: But you have written quite a lot about business environments, what makes them flourish or go barren. Surely government has something to do with that?

BIRCH: Yes, it does. Take the relationship among job supply, innovation, and regional economic growth. Now I don't know how long this has been going on -- our data go back to 1969 -- but we have found some startling things about job supply in the course of our work. We found that each year 8% to 10% of the jobs in this country are lost. They vanish and have to be replaced with others. This means that every five years the economy must replenish roughly 50% of its available job slots, just to stay even.

OK, where are most of these jobs coming from? They're coming from new, innovating, and growing businesses -- some of them very big businesses, like Wang here in Massachusetts; but businesses that not long ago were very small. But the key word in this proposition for growth -- or at least for replenishing the job supply -- is innovation. Remember, if you're not fixing it, it's already broke. And if it's broke, it's your job that will need to be replaced.

But consider what this means. It means that your job supply is very considerably dependent on technology. Not high tech; high tech actually generates only a small percentage of the work needed to make up the losses in the job supply. The jobs come instead from all those companies that think of ways to use the new technologies -- like Federal Express, for example. I told you about going out in the truck with the woman from Federal Express. All the electronic equipment! I don't know what they call her job on the census rolls, but if you compare it to what the old beer-bellied truck driver does, she has no more in common with him than a beetle has with a butterfly.

So where is this technologically innovative ferment likely to take place? So far it has been happening mostly around the big universities -- those holding tanks that capture all the bright young people, then spit them out into the surrounding neighborhoods to make their way -- and make jobs. I don't say it can't happen anywhere. It does. Ideas circulate in this country with the speed of sound. But by and large it's around the big university centers that the ferment occurs. And that's where government comes in -- through education, and through vocational training and retraining. It looks to me that if we are turning over 50% of the labor force every five years, and technology is changing as fast as it is, then people will have to innovate themselves, not just products, if they want to have jobs. This is an educational problem, a problem of state and local governments.

INC.: What about European governments? We understand that you have done some consulting over there.

BIRCH: That's right -- in Sweden, Britain, Canada, and we're now talking to several other nations as well: Australia, the Netherlands, Norway, Mexico. . . .

INC.: And you've been asked to look at their economies in much the same way as you've been looking at the U.S. economy.

BIRCH: Exactly. Count the horse's teeth. Understand what is actually going on. As opposed to asking what will happen -- according to theory, anyway -- if they fiddle with the interest rate, the discount rate, the consumer price index, or whatever. That sort of stuff just isn't working anymore. Many European economies have gone as flat as a three-day-old bottle of Pepsi. Why, do you realize that in the 1970s the European Economic Community countries among them gained only I million jobs? While the United States in the same period, with a smaller population, generated 19 million new ones. And Europe has lost the 1 million since 1980. That's incredible.

And in Sweden . . . well, Sweden is one of those countries that is reacting to its problems by applying more of the same old policies. Not long ago, for example, legislation was passed that required corporations to hand over 10% of their profits, in the form of equity, to the trade unions. This brought out 100,000 private business executives into the streets. They marched on Parliament. Imagine it -- maybe half the CEOs in Sweden -- marching on the legislature!

So I have to correct what I said a minute ago, about not being much interested in what governments do. Even so it's not so much what governments do there, now, in the present, but what they have done, in the past, throughout their histories. It's the whole social-political disposition of those nations that's got them where they are today, where all the fizz has gone out of their economies.

INC.: How so?

BIRCH: Well, it's sort of tragic, really. It's a disposition against failure. And that's a Good Thing, up to a point. Business failure is a Bad Thing: People get hurt, thrown out of work, lose their savings, etc., etc. So what do you do? On one hand you try to make sure that existing enterprises do not fail. You give them all kinds of aid and support, and you insist, through rules and regulations, that even if they do start to fail, they can't lay off any workers. Translated, this means that everything is disposed to maintain the status quo; nothing is allowed to move or change, not capital, not organizations, not even people.

INC.: You make it sound as though European economies are all like your income-substitution businesses.

BIRCH: That's it exactly.

INC.: So what's wrong with it? You said that income-substitution businesses were often success stories.

BIRCH: And so they are.But remember what I said also. Income-substitution businesses are, by definition, no-growth businesses, or very low-growth businesses. More important, they're no-innovation businesses, and that's a disaster in the modern world. Because the world is changing at an incredibly rapid rate, and if you don't change with it, by innovating, you're doomed.

INC.: What you're suggesting, it seems, is that Europeans have got to get out of the income-substitution business and into the entrepreneurial business.

BIRCH: That's right.But it's going to be terrifically hard for them. It all goes back to that fear of failure. Entrepreneurs fail. If they don't fail utterly, they fail partially. They're always on that roller coaster, going up and down, up and down, up and down. And in fact, one of the most important things we found out about the entrepreneurial career is that the best predictor of subsequent success was previous decline, and the best predictor of decline -- I mean a downward swoop on the graph -- was a prior success, an upward swoop. It was the same with regions: We found that the best indicator of a growing regional economy was a high start-up rate, but also a high failure rate.

And this is a country that's very forgiving of failure. If you start a company, and fail, you are somehow viewed as entrepreneurial, innovative, gutsy, a great guy. So what if you failed. You learned a lot; God-speed on your second try. I know a banker who will make loans only to people who have failed once.

And contrast this with Europe, which places an enormous value on stability, security. If you do that, then you must exact an enormous price for failure. Which is just what they do. Many European countries have nothing like our Chapter 11. Chapter 11 is too forgiving. You can start all over again, wipe our all your debts, and in many circumstances you don't even have to go out of business. Well, in Europe, if you go bankrupt, everything you have -- your personal assets, your reputation -- everything goes with it. You might as well leave the country. Your children will be unmarriageable. Nobody will ever give you a loan again. You are a disgrace.

And if you don't go bankrupt, if you succeed, then your fate will be almost as bad. Someone has to pay for all the stability and security. The people who succeed have to pay. I have a consultant friend in Sweden, a successful guy. Let's say he makes about $30,000 to $40,000 a year. Well, he's in the 85% tax bracket! Every extra dollar he makes, 85? of it goes to the government, to maintain stability and security.

So that's the bind that European culture and history have put their entrepreneurs in. If they fail, they're punished horribly. And if they succeed, they're punished almost as horribly.

INC.: Fine. But maybe we should play devil's advocate here.What's wrong with taxing the successful to maintain stability and security for everyone else?

BIRCH: Well, you've got to imagine two sorts of economies going on at once, interacting with one another all the time. Call them micro and macro. The macro is the whole thing as one piece. It is made up of the individual (micro) pieces -- the companies. Now it's turning out that the key to the harmonious working ot this relationship lies at the micro level, the innovative, radical, changing, entrepreneurial base. That's where most of the new jobs are going to come from, the new wealth, the new ideas in products and services. That's where the strength of an economy lies. The more dynamic and unstable the micro, the more secure and stable the macro.

Let me put in a metaphor for you -- it might help resolve the paradox. When they first built those huge space-rockets down in Florida, they had a problem of how to get them from the assembly site to the launching pad. It was like moving a skyscraper. So they thought first of building a road -- a good, thick, solid, stable road. But then they realized that the motion of the truck, combined with the enormous height of the rocket, would set the whole vast superstructure weaving around like a tall tree in a gale. So what did they do? They made the road out of a deep bed of pebbles. Of course the pebbles moved under the weight of the thing -- it was hell down there, all that grinding -- but the movement, the grinding, compensated for the motion of the rocket, and the overall system was stable and secure.

INC.: Very neat. But we're talking about human beings down there, not pebbles, or atomic particles. What about the human toll of this juggernaut? What about the steelworkers in Youngstown, Ohio?

BIRCH: Well, that's what makes this play a tragedy, or at least a continual drama, with no happy ending, and no clear-cut good guys and bad guys. But Youngstown is peanuts compared to what is coming down the road. The entrepreneurial economy has always thrived on products and instruments that saved labor, time, and money -- in a word, that put people out of work. It drove them off the farms, now it's driving them out of the factories. Until recently, though, there was more than enough room for them in the service sector -- banks, insurance companies, hospitals, etc. But now technology is taking a bead on the service sector.

And what I'm saying is that the Youngstown kind of displacement is a drop in the bucket compared to what's going to happen to white-collar employment in the not-too-distant future.

INC.: And that's not destabilizing?

BIRCH: You bet it is! But there are ways of compensating. One way might be something like a bill that's before Congress right now. It would be to set up individual training accounts, a kitty of up to $6,000 that a worker could draw on to retrain himself or herself for another job. The worker would pay in 50%, the company 50%; but it would be vested in the individual, not the job. And it would be deposited in his or her account in a bank, like an individual retirement account, so that the money would stay in the system.

You've got to have something like this, because if the pace of innovation keeps up -- as it must if we're not to fall behind like the Europeans -- then most of us are going to have to make five or six career changes in our lifetimes.

INC.: One thing worries us in all this. Going back to your entrepreneurial base again, to the winners anyway -- what does this suggest about the concentration of wealth in this country?

BIRCH: That it's largely concentrating in the subscribers to your magazine. Entrepreneurs in this country today, given the rules of the game, can acquire extraordinary wealth in a way that's just not possible anywhere else in the world. The number of millionaires is growing at a rapid rate, faster than any other income sector. And a smaller percentage of the people now control more of the wealth in the United States than they did 30 to 40 years ago. So within the United States we have a wealth-distribution problem that is going to become, I think, quite serious over time. It is already very serious between the United States and the rest of the world.

INC.: We gather that this hasn't stopped you from becoming an entrepreneur yourself. You've founded a company called Cognetics here in Cambridge. An obvious question: Did your academic research in any way help you when you decided to found your own business?

BIRCH: Oh, yes! I know what the odds are, to a certain extent. I know that I very much want to be one of those top 10% or 12% who are in the entrepreneurial class, not the income-substitution class. And knowing that, I know what I am highly vulnerable to going down -- as much as I am to going up -- and that I've got to prepare myself financially.I don't want to get all my equity wiped out on the downside, or I defeat my own purpose. We've got to start financing ourselves, or else we're in big trouble.

INC.: So your research has had a direct impact on the rate of your growth?

BIRCH: Absolutely. And the impact has sometimes been to slow it down.

INC.: Does that mean that you actually turn down opportunities that arise, or chase fewer of them?

BIRCH: Sure. It means making judgment calls. Does this opportunity fit in with where we're going, or not? If it doesn't, how far off is it? Too far, even though we need the cash flow? We want to make sure that we're building as solid a foundation as we can, so that the troughs will be higher and the peaks come sooner -- so the curve will look just a bit more like a ramp than a roller coaster.

At the same time, I've got to innovate -- so as to stay ahead of anyone who tries to enter the game. We're introducing new products and new technologies at a very high rate now, and I'm willing to slow down my profit growth over time in order to finance the research and development for those innovations with my cash flow.

INC.: Sounds like Sisyphus and his rock.

BIRCH: No, it's really a lot more fun than that -- and, we hope, a lot more rewarding.