As told to Stephanie Clifford

Industry: Business Services

2006 Inc. 500 Ranking: 66

Three-Year Growth: 1,053%

Morgan Lynch was a young marketer who was put off by the inefficiencies of ad agencies, what with the layers of account executives, marketing managers, and on and on. So, at age 29, out of a cobwebby house in Provo, Utah, he and a friend launched Logoworks. It connects graphic designers--some in-house, most of them freelancers--with small businesses to create logos, brochures, and websites, no ad agency required. The company, which has now created identities for thousands of clients, had sales of $7.3 million last year.

In college, I started working at a software start-up in Provo called InsurQuote. About two years in, I realized our company was started by engineers so there really wasn't any marketing. I said, Hey, let me go fix that.

The biggest annoyance I faced at InsurQuote was logo design. I found a local ad agency. The partners come in and say, We're great, here's why. As soon as you say yes and pay your $5,000, that's the last time you see the partners. Eventually we got a logo that was okay, but I didn't like paying bills for people thinking about our stuff. The design process seemed flawed.

That became the idea for Logoworks. We have 225 designers. For any job, at least two of them independently come up with different concepts--the most popular deal is three designers for $399. Every designer gets paid for concepting, and the one who gets chosen gets a bonus.

In 2000, I called Joey Dempster, who's the co-founder of Logoworks; I'd worked with him at InsurQuote. We don't always agree on everything, but we ask each other hard questions. Joey's kind of a free spirit. One of his friends had this abandoned house up on a hill in Provo. It's called the Spider House because there are lots of spiders in it. Joey lived in the basement because it was free.

We set up shop in a big room in the Spider House and spent three months in winter 2000 doing research into design.

By 2001, we'd left the Spider House, incorporated, and started looking for capital. Late 2001, that's a rough time to be telling people about this great new Internet company you're building.

Our very first client we dealt with was a cabinet company. We were sure this one logo was one of the coolest things we'd ever seen. The artist had done, basically, a modern-looking wood shaving. The client kind of liked it, but wanted it to look more literal. We were shocked that they didn't go with what we thought was brilliant.

We did one for Phat Church--that's p-h-a-t. It was a college ministry so they wanted to appeal to a very young crowd.

We funded the company from a group of angels for about $330,000. Eight months later, we'd used almost all that up. It was, get sales to fund the growth or stop operations.

I don't think we counted on, in those early days, the referral rate and repeat rate of our customers. That's been the biggest help. Small businesses get their logo, they're happy, and they tell their friends. We've done logos in 102 countries now.

Online, we used pretty good tools right from the beginning: We'd spend X amount of money and track that through to see how many people bought because of it, so we'd know what to start and what to stop. We couldn't make bad mistakes; a bad mistake would be fatal.

By 2005, we were self-funding. But if we wanted to keep doubling our growth rate every year, we were gonna need to invest in a lot of different channels and partnerships. So in February 2005, we looked for funding again. It was very, very different. We got $9.3 million.