"It ended with lawyers."

That's how Ted Nace describes his first book deal, a "death of a thousand cuts" that culminated when his publisher, Microsoft Press, decided to change his book's title, "The Software Author's Handbook," to "Programming for Profit" at the last minute. Nace fought back by pulling the plug; his book never went to press. David Korten's story isn't much better. McGraw-Hill removed his first book, Bureaucracy and the Poor, from shelves after just six months. "They'd promised they'd promote the book worldwide and keep it in print," Korten recalls. "Even things that were clearly printed in the contract they ignored." (Both publishers declined to comment.)

Such is life in the traditional publishing industry, where authors have little, if any, say in how their work is edited, printed, distributed, and marketed. In part, that's because most big houses such as Simon & Schuster, HarperCollins, or Penguin Putnam pay authors a cash advance, often taking ownership of the product before page one has even been written. But even that's no guarantee of success. A book by the average author–that is, the average author who manages to find an agent and land a deal–sells just 11,800 copies, according to the Book Industry Study Group, a nonprofit research organization, and RR Bowker, a provider of bibliographic information. More often than not, the book heralded as the next Good to Great or Harry Potter becomes just another example of pulped fiction. "What's to say about publishing today?" laments Adrian Zackheim, publisher at Portfolio, Penguin's business imprint. "The tale of woe is more woeful. There are horror stories everywhere."

Zackheim is talking about an industry where $28.6 billion in 2004 revenues was split among 195,000 books. That's just $146,667 per book. Factor in the cost of acquiring, editing, manufacturing, marketing, and shipping each title, and publishing begins to look like the inverse of Vegas: a place where the house usually loses.

And then there's Berrett-Koehler, a small 13-year-old San Francisco-based publisher with a radically different approach. By turning the experience into a collaborative model that brings together the author, the editor, outside reviewers, and even readers, Berrett-Koehler has established itself as a house authors call home. "A lot of publishers treat authors like nuisances," says Steve Piersanti, BK's founder and president. "We treat them like partners." That's the case with Nace and Korten, both of whom eventually found success–and creative satisfaction–with Berrett-Koehler. "It's like having your own professional in-house support staff," Korten says.

The results–smarter books and better sales–speak for themselves. Last year, BK's revenue grew 25%, to $7 million, and is projected to grow another 50% in 2005. The average BK author sells some 15,000 copies, 27% more than the industry average. "BK epitomizes what . . . smaller, focused publishers of the present and future can and should be doing," says Michael Cader, founder and editor of "Publishers Lunch," a daily newsletter that covers the publishing industry.

Although Berrett-Koehler is still a small company, with a catalog of just 30 titles and 250 authors, it has attracted such big-name writers as Ken Blanchard, the prolific consultant behind the One Minute Manager series, and management don Henry Mintzberg. "The big houses . . . basically give a book a six-week look, then they move on," says Blanchard, who has published five books with BK. "Steve is always asking what we can do to keep it going. It's win-win."

Average revenue per book [publishing industry]: $146,667

Average revenue per book [Berrett-Koehler]: $220,000

Much of BK's approach is a reaction to Piersanti's personal experiences. He started his career in 1977 as a copy editor for Jossey-Bass, an imprint of John Wiley & Sons, and became president 13 years later. What he saw on the way up upset him. Across the industry, he says, authors, suppliers, and employees "were treated like they didn't matter." Ordered to lay off eight staff members in 1992 despite the fact that sales and profits were up 22% and 42%, respectively, Piersanti refused. He was given less than an hour to leave the building.

Within days of Piersanti's firing, suppliers, investors, and printers were offering lines of credit and encouraging him to start his own publishing house. Established authors stepped forward with book projects even though Piersanti had no staff or press. He took them up on it, and Berrett-Koehler, named to sound bookish but really a mix of random family names, was born.

Piersanti didn't want his company to be like other publishing houses. For starters, he hoped to share the wealth: Although Piersanti owns 54% of BK, more than 100 authors, customers, employees, and suppliers own the remaining 46% of the company. He aimed to create a "nerve center," empowering employees, investors, suppliers, and authors to make key decisions about their creative works together. For Nace, this meant the freedom to publish Gangs of America online for free, despite concern that such a move might hurt hard-copy sales. (He says it actually helped them.) For Korten, author of When Corporations Rule the World, it meant having his choice of three different copy editors.

Once the contract is signed, one of the first differences authors notice at BK is the lack of upfront cash. Unlike most publishers, the company doesn't offer advances, so authors will earn money only with royalties if the book sells, a hardship for those who need to pay the rent while writing their masterpieces. Yet if they aren't happy, they're free to leave. BK limits its contracts to one book at a time, uncommon in an industry where multibook contracts are typical, and allows authors to break their contracts at will. Piersanti once released Blanchard and his coauthors from a tentative agreement after they were offered a $500,000 advance for their book by a competitor. Since 1992, only one author has officially broken his contract, saying he felt more comfortable with a traditional publisher.

Next comes the manuscript-review process. While most houses employ a handful of full-time editors, BK commissions the help of some 200 freelance reviewers–from college professors to politicians. BK's senior managing editor, Jeevan Sivasubramaniam, who oversees the broad network of volunteers, likens the process to matchmaking. Upon receiving a manuscript, he'll team the author with a reviewer whom he believes will like the book, one who is bound to be skeptical, and a couple of others, including at least one "wild card" with no specific background in the subject. The reviews–often 15 to 20 pages from complete strangers–can be hard to swallow, especially after months or years of solitary wordsmithing. "Authors are typically horrified," says Piersanti. "For the first three or four days they can't even see straight."

Average number of copies sold [industry]: 11,800

Average number of copies sold [Berrett-Koehler]: 15,000

The ends justify the means, says Sivasubramaniam, who derives a mischievous pleasure from his role as matchmaker and intellectual alchemist. "When four reviewers who've never met one another come to the same conclusions, the author pretty much has to stop and listen," he says. That was certainly the case with Margaret Wheatley's latest book on resilient organizations, Finding Our Way. Originally slated as a collection of older, previously published essays, the book was fleshed out and updated with new, more-relevant insights after reviewers encouraged her to do so. And because BK includes names and contact info with each manuscript review, many authors have gone on to forge close friendships or working relationships with their reviewers.

Authors are also invited to spend a day presenting their books at BK's offices, where staff and company friends discuss everything from chapter titles to which bookstores might host a reading. At Korten's most recent "author day," one attendee, a twentysomething bookstore clerk, opined to the sixtysomething best-selling author about "social change during the past century." A young BK staffer chimed in, alluding to the "burden of history." Korten listened patiently. Asked whether or not his next book could perhaps benefit from a podcast or wiki, Korten hesitated, sweat beading his forehead. "Is that like a hickey?" he asked.

At a traditional house, once a book is edited and ready for press, authors often have little to do with the significant marketing decisions surrounding it, such as the title, cover design, book jacket, and promotional material. While a blood-red cover may make sense to the average marketing exec, it may not be what the author had in mind. BK addresses this problem by giving authors and designers a chance to work cooperatively through an interactive blog. For each new book, editors and designers will come up with several titles and cover options, posting them online. Authors love the result–a buffet of distinct type fonts, rejiggered subtitles, and contrasting color schemes that evolve as new comments are posted.

To help inform authors' marketing decisions, everyone at BK–from the senior editors to sales managers to, literally, Kathy in accounting–is invited to share his or her suggestions on the blog and elsewhere. Distributors, sales reps, and others from outside the company are invited to post comments as well. Dianne Platner, the production manager, sees the blog as a dramatic improvement over the traditional model. "Because we've seen the proposal, because we've met the author, because we've been there every step of the way, we know how the author wants the book to be positioned," she says.

Collecting all this feedback does have its drawbacks. Deliberations can drag on, and some authors can be difficult. "A lot of things that would normally take two-thirds to half the time get complicated," says Michael Crowley, BK's senior direct sales manager. Recently, one of BK's best-selling authors went through more than 30 cover designs before signing off on the final version. The exasperated graphic designer, in a playful allusion to the author's dominatrix-like demands, drew up a mock design featuring a black leather stiletto. Months after the book's publication, the stiletto pic is still floating around the office. Then, of course, there's the problem of taste. After falling in love with the aquamarine and yellow label of a water bottle, the coauthors of one book demanded that their book's cover bear the same clashing hues. BK ultimately deferred to their judgment–and the book was a flop.

Yet Piersanti figures that a few screwups are worth it if he can create a stable of happy, loyal authors who are motivated to help BK succeed. Last year, a third of BK's new writers were referred by existing authors. "Our old authors are our brain trust," says Sivasubramaniam. "They're like our agents–they see changes in their industry and they spot new authors." Author retreats, where dozens of writers come together to share ideas, suggest speaking opportunities, and offer advice and contacts for book tours, have resulted in projects Piersanti never anticipated, drawing publicity and building ties throughout the industry. Some author-inspired events have included a writer-organized conference, which resulted in the publication of a book of essays, and a marketing workshop, where some 60 authors and key outsiders, such as booksellers, shared experiences.

While business books like Blanchard's and Mintzberg's are BK's bread and butter, it will expand its new titles from 30 to 45 in 2006 and is putting out its own nonfiction list with socially progressive themes. One of these was John Perkins's Confessions of an Economic Hit Man, which has sold some 180,000 copies and was a New York Times best-seller.

In spite of BK's double-digit growth, Piersanti isn't worried about other houses trying to replicate his model: Bringing outsiders into the decision-making process is hard work, and incorporating authors' suggestions can be risky. "They do it their way, and their way is very distinctive," says Portfolio's Zackheim. "It wouldn't work for everybody." Still, the industry seems to be paying attention. The editor-in-chief of Random House, Jonathan Karp, stepped down in June to start an imprint that will devote much more time to its authors and publish just 12 books a year–one per month. Looks like someone's reading between the lines.

Lucas Conley (lconley@fastcompany.com) is a Fast Company staff writer.