IN JANUARY 1983, IN A SMALL WOOD-working shop behind a retail music store in Woburn, Mass., Santi Falcone founded the Falcone Piano Co. and set out to make the "best piano in the world." Imagine, then, Falcone's excitement only a few years later when Rudolf Serkin dropped by the shop to try out the new instrument. Serkin says he went to Woburn to encourage "an amateur" and remembers playing for about half an hour to a small and appreciative audience. When he was finished, according to some of those present, the maestro rose from his chair, clasped Falcone's face in his hands, and said, "Mr. Falcone, you are the artist."

Some time afterward, Leif Bakland, a 33-year-old dentist from Newburyport, Mass., made his way to Falcone's shop and was also impressed by the sound of the instrument he heard and played -- so taken, in fact, that he would eventually secure a second mortgage on his house to finance a new $23,750 Falcone grand.

Falcone, who appreciates a sale as much as anybody, naturally was delighted by Bakland's visit. But he was also frustrated. For in the business of selling pianos, as in selling basketball sneakers and tennis rackets, real industry status comes from big-name endorsements. And Leif Bakland is hardly what you'd call a big name. With his year and a half of piano lessons, Bakland is to Serkin as "Chopsticks" is to Beethoven's "Moonlight Sonata." Yet at this point in the company's growth, someone like Bakland was far more likely to play a Falcone than Serkin. And further, in what may have been the most disconcerting irony, Falcone had to reconcile himself to the fact that his problem was not, in its largest part, related to the quality of his product. Even if it could somehow be objectively determined that the Falcone was, in fact, the best piano in the world, famous artists still might not adopt it as their instrument of choice.

In this respect, Falcone finds himself trapped in one of the most common catch-22s known to entrepreneurs: you can't get bigger because you're not big enough. Consider, as a generic example, a start-up that develops an innovative computer and is soon presented with the opportunity to bid on a large order. This order could provide the infant computer company with the resources necessary to make further break-throughs and garner additional market share, but the order must be turned down because the company's support staff is too small to service the account. By default, the order goes to IBM, and the company continues to toil along within the confines of its narrow market niche.

Falcone's particular case works in much the same way. In the United States, the market for concert pianos can be summed up in two words: Steinway and Baldwin. As "Steinway artists" or "Baldwin artists," name performers agree to use one brand of piano exclusively, in return for the commercial use of their names and a promise from the manufacturer that there will be a piano available and properly tuned wherever and whenever they play. To the working artist always defending a career against the vagaries of life on the road, the security and convenience of such a relationship is considerable. But it is a relationship that is exceedingly difficult and expensive for Santi Falcone to duplicate.

Today, the 42-year-old Falcone ponders this dilemma in a brick, six-story converted furniture factory on an obscure back street in Haverhill, Mass. Here, Falcone and 60 employees craft -- by hand, slowly, and exceedingly carefully -- three sizes of grand pianos. In effect, each one is virtually custom made for a narrow market that includes professional musicians, music schools, and other organizations and individuals devoted to piano and willing to pay $17,850 for the six-foot one-inch model, $23,750 for the seven-foot four-inch grand, and $31,900 for a spectacular nine-foot concert grand. Although only 100 pianos have been produced since the company was founded, volume has since expanded with the move to the larger, more efficient Haverhill building last summer. Currently, Falcone and his crew are working their way through a six-month backlog of orders at the rate of 7 pianos per month. And although the company continues to lose money, Falcone expects to hit an annual production level of between 850 and 1,000 pianos by 1990, a $20-million business that he figures will throw off $6 million in profits.

Still, between now and 1990, between the thought and the act, falls the catch-22, in which Falcone must contend with the intransigence of a market "owned" by two quality competitors whose long tradition of service and worldwide network of dealers have given them a tight grip on the customers he needs most. "You know," Falcone says wistfully, "if Rudolf Serkin would adopt my piano, that would put this company into another era entirely."

Predictably, a man who sets out to build the best piano in the world is not easily put off by a mere marketing challenge. Among the pressures Falcone brings to bear on what appears to be an immovable object is the seemingly irresistible force of what can only be called destiny. If ever there were a man born to make pianos, it has to be Santi Falcone.

When he was 14 years old, Santi Falcone and his family emigrated to Somerville, Mass., from Mazzarino, a small town in the Caltanissetta province of central Sicily. In his own recollections of his youth, one feature occurs repeatedly -- music. His father, Ignazio, a diesel-engine mechanic, was given to celebrating his various joys with spontaneous outbreaks of song in an untutored but memorable tenor voice. Opera was his particular passion and frequently young Falcone borrowed records from the local library to feed his father's delight.

"He would play them," Falcone says, "and he would say, 'Santi, Santi, come here and listen how beautiful.' You could say we learned about music together." Every Easter Sunday, their dining-room table set with the traditional Sicilian meal of roast baby lamb annointed with spices and cheese, the elder Falcone would put the opera Cavalleria Rusticana on the record player, and he and his son together would sing its verses for the rest of the family.

After his son finished junior high school, Ignazio decided that the boy's voice was good enough to merit formal training and sent him overseas to the Santa Cecilia Conservatory, in Rome. There, one afternoon Falcone wandered into one of the school's recital halls and watched an elderly piano tuner at work. Whatever plans he had had for a singing career suddenly seemed irrelevant as he now felt the first pull of his true calling. Occasionally, the tuner would drop a tool and could only find it again with unusual difficulty. Falcone held back until he realized that the man was blind. Soon Falcone became the man's apprentice, and the love of the instrument would bind the craftsman and his young student. "The piano absolutely fascinated me," Falcone recalls. "I didn't know how anybody could ever make such a complicated instrument."

When Ignazio died, Falcone, barely 17, returned to Somerville to help the family. Overconfident of his abilities, he bought a battered piano and had it craned up to their second-floor apartment. "That piano needed a lot of work," he says. "I tried to repair it myself and made a mess out of it." Falcone had a gift for the work, though, and he started repairing and rebuilding pianos at various shops around Boston. He was soon hired by The Boston Conservatory of Music to maintain all of its pianos. In the evening, Falcone also serviced a growing private clientele. "I would pick out names from the telephone book," he says. "I'd say, 'Hello, it's time for your piano tuning.' And many of them would say, 'But I don't have a piano.' Then I'd say, 'Oh, sorry, wrong number.' But, of course, some did."

In 1971, after an Army tour of duty in Vietnam, Falcone came home again with roughly $13,000 saved from his pay and opened New England Piano & Organ Co., a small retail store on Main Street in Waltham, Mass. If he was an exceptional piano technician, Falcone turned out to be no less skilled at business. Only five years later, he was selling pianos and organs from seven locations throughout New England with a payroll of 45 employees and revenues of about $2 million. "I was doing very well," he says, "but I didn't like it. You get large, you get more people, more headaches, and your goals get confused." Even when a group of investors tempted him with untold riches if he agreed to expand his stores into a national chain, Falcone was not only unmoved but almost revolted by the image of what he regarded as "a McDonalds kind of thing." Besides, Falcone, who had by now repaired or rebuilt at least one model of every important piano in the world, had already decided to create a new grand piano that would be better, and less expensive, than any then produced in Europe or the United States.

So began a four-year period of research and development, which Falcone estimates cost him roughly $400,000. To finance the project, Falcone sold off each of his retail stores to the store managers, retaining only the store in Woburn as a base of operations. Various makes of pianos were still sold from the showroom in the front half of the building, while the rear was filled with the tools and machines of the piano-maker's trade. Gradually, Falcone mastered the details of manufacturing -- where to buy woods, and castings, and parts for the key-board action. And to see how it all fit together, he traveled to Braunsweig, West Germany, for a careful tour of the plant where the highly respected Grotrian piano was made. Finally, in the summer of 1982, Falcone completed the first piano to accurately transcribe his vision of design, tone, and responsiveness. And as news of the new piano spread, concert artists began visiting Falcone's shop to try it out.

One of the first was Leonard Shure, a well-known concert and recording artist, who was so impressed with the instrument that he chose to play Brahms's Piano Concerto in B-flat on a Falcone grand in concert with the Boston Philharmonic Orchestra. It was the first time one of the pianos had ever appeared with a major orchestra -- an historic moment not lost on conductor Benjamin Zander, who, during rehearsals at the New England Conservatory of Music, put a sign in the lobby urging students to "come hear a new piano." On the night of Shure's performance, Falcone sat in the audience, transfixed. "It was the thrill of my life," he says. "Oh, boy, did he sound great."

From that day, nearly every time a Falcone piano was used in a concert, a fresh batch of orders would arrive at the ever more cramped shop in Woburn. It was clear Falcone had reached a decision point. He had no doubt that he could indeed build the best piano in the world if he continued to build so few. But he wanted something more: he wanted to set a new industry standard. And to do that he had to become more than a small craft shop, more than a piano boutique. If he ever expected to capture the world's leading players, he had to offer service and availability as well as quality.

The decision to expand could hardly have come at a more troubled time for the U.S. piano industry. Between 1978 and 1985, the number of pianos sold in the United States each year dropped from 282,000 to 151,000. During the same period, exports declined from 19,000 to 4,000, while imports, mostly Japanese and Korean, more than doubled -- from 28,000 to 57,000. In other words, American manufacturers were losing market share even as the market was shrinking.

"Two things happened in parallel," explains Dennis Houlihan, of Jordan Kitt's Music Inc., one of the largest retail piano chains in the country. "U.S. manufacturers -- without naming names -- did not pay good enough attention to quality. At the same time, foreign price-value relationships improved."

As established manufacturers began closing their doors, other reasons were cited for the impoverishment of U.S. piano making. Unionization, high interest rates and the high prices of raw materials, a strong market for used pianos, and the decline in the number of children at the peak piano-lesson ages -- each of these, no doubt, made its own contribution. But some observers see a more subtle, but ultimately more profound, influence at work -- the break in a piano-making tradition that dates to 1687.

That year, harpsichord maker Bartolomeo di Francesco Cristofori answered the door of his shop in Padua, Italy, to find Prince Ferdinand di Medici, son of the grand duke Cosimo III. The prince, an accomplished harpsichordist, convinced Cristofori to come to the court at Florence and enrich both their lives. The royal patronage so pleased Cristofori that he soon invented the first piano, a modified harpsichord in which a row of small hammers struck the strings from below, as opposed to earlier forms in which the strings were plucked by quills. Cristofori's instrument was particularly responsive to variations in the pianist's touch and could produce both soft and loud sounds. Soon it became known as the "piano e forte," meaning soft and loud, a term that was later shortened to "pianoforte," and finally to "piano."

In addition to his technical breakthrough, Cristofori also established a tradition in piano manufacture that implied a special relationship between a single craftsman and the instrument itself, suggesting that only the close and continuing personal involvement of the creator could ensure the extraordinarily high quality of a product whose ultimate goal is great art. During the centuries that followed, this essential relationship characterized piano manufacture throughout the world, reaching its highest and most effective expression in the mid-nineteenth century, in the United States, with such names as Jonas Chickering, D. H. Baldwin, Henry Mason, Emmons Hamlin, and, of course, Henry Engelhardt Steinway. But today, with the noteworthy exception of Santi Falcone, those highly personalized bonds between a piano and its creator are only memories.

Even though the specific effect of this rent in the ratural order of things is difficult to quantify, there have been times when the consequences could be seen more or less clearly. In 1972, for example, the reigning Steinway brothers, John and Henry, reacting to their own advancing age and to the lack of interest from other members of the family, sold the legendary company to CBS Inc. for about $20 million in stock. CBS, in turn, attempted to expand production, but the results were far from impressive. Musicians and dealers alike agree that during the next decade, the quality of the prestigious Steinway piano declined. "The piano business does not take well to big-business ownership," says Houlihan. "It was an industry started by a few entrepreneurs, and when that spirit gets subjected to the demands of a big corporation and excessive financial analysis, it loses its spontaneity." CBS may have reached a similar conclusion. In 1985, it sold the piano manufacturer to a group of Boston-based investors, which again caused Steinway & Sons dealerships to fret over the future of the instrument.

Like Steinway, the Baldwin Piano & Organ Co. also suffered from conglomerate tinkering. During the late 1970s, the assets of the piano maker were transformed into a diversified company calling itself Baldwin-United Corp., which ran up a sizable debt acquiring banks, savings and loans, insurance companies, and most notably, the giant $1.2-billion mortgage guarantor, MGIC Corp. Late in 1983, Baldwin-United filed for protection from its creditors under the federal bankruptcy code. Through it all, the original piano company continued to operate profitably, and by 1984, its employees had managed to extricate themselves from the debacle by purchasing the subsidiary in a leveraged buyout.

Against this backdrop, Santi Falcone stands out as something of a welcome anachronism, an artist-entrepreneur worthy of membership in the proud guild established by Cristofori. In his own mind -- and indeed, in the minds of many of his customers and admirers -- he had come to rescue beauty and truth from the maw of mass production. But his immediate challenge was more prosaic: finding a way to break the closed circle of logic that kept him small because he was small.

Even if it was obvious to Falcone that he had to expand his volume, the question of how was still an open one. His pianos were already priced well below comparable Steinways (although not the Baldwins) and certain foreign brands because they were sold direct from the manufacturer. But in order to preserve this important competitive advantage, Falcone could not use the existing network of independent piano dealers -- with their hefty middlemen markups -- to bring his product quickly to a wider market.

And there was yet another constraint that Falcone imposed on the method of his ascent. True, he had to grow, but he had promised himself he would never grow beyond the point of producing more than 1,000 pianos a year. Beyond that number, he feared, he might compromise the instrument's quality, which was, after all, his primary interest as well as the instrument's ultimate selling point. "I will not have a huge production line pushing people into making errors," Falcone says. "You can't have just the profit motive and be great."

Falcone's was a noble sentiment, but not one calculated to win the support of the capital markets, to which he had turned in 1985 with a $1.7-million private stock offering. Various venture capital groups and financial institutions were intrigued with this craftsman, his piano, and his prospectus, but they balked at the idea that a company should anticipate, let alone plan, to cut off its unit volume at 1,000 pianos annually. After all, if you could take in $20 million at that level, why not produce a few more pianos and make it $40 million? "We didn't get much institutional interest at all," says Thomas J. Walsh Jr., Falcone's director of marketing, an investment manager whom Santi lured from early retirement. "I guess it looked un-American."

In the end, the shares in Falcone Piano Co. were purchased by wealthy individuals whose interests in music were at least equal to their interests in rates of return. To their $1.7-million investment, Falcone is scheduled to add another $975,000, the proceeds of an industrial revenue bond secured through the Massachusetts Industrial Finance Agency.

Production soon moved into higher gear at the new Haverhill location, and so did Falcone's marketing, with particular emphasis on wooing well-known, if not always big-name, performers. Clearly, he could not duplicate Steinway's system, which includes 126 dealers in more than 195 markets, and an inventory of concert pianos in the field valued at $15 million. But he could mount a modest campaign in his own backyard.

He began in the Boston area by loaning pianos of various conservatories and orchestras. And if a visiting artist, intrigued by the piano's growing reputation, asked to play one in concert locally, Falcone was as likely as not to pay the $500 to ship it to the concert hall. Thus, in the part three years, more than 40 prominent pianists and some 15 orchestras have used Falcone pianos, and Falcone now turns away two loan requests for every one he accepts. "He's a good promoter," says Jack Romann, Baldwin's director of concert-and-artist activities. "He's done well in New England. And everybody has to start somewhere."

To date, Baldwin has been more tolerant than Steinway of the occasional use of the new piano by name artists. But Falcone still has yet to receive the unequivocal support of even a single major concert pianist from either camp. Although his company has grown, it is still not big enough -- and certainly not yet able to satisfy the legitimate self-interests of international artists on tour. Pianist Leonard Shure, for example, who ranks the Falcone piano "among the best available anywhere," said he would not become a Falcone artist "because I've been with Baldwin so long and because Santi can't service me all across the country." Falcone intends to begin meeting Shure's challenge head-on over the next three years by opening seven company-owned dealerships in major U.S. cities.

In the meantime, as the piano maker chips away at his catch-22, Leif Bakland is practicing like crazy. And when his new Falcone is finally completed and delivered, he promises to practice even more. "Why? Because you want to get your money's worth?" he is asked. "No," he says, pausing to laugh at the thought, "because if Santi calls and asks me to be a Falcone artist, I want to be ready."