Founded in 1945 out of the trunk of a car, Carolina Pad evolved from targeting regional school systems to working with national retailers. But the Charlotte, North Carolina, company always sold the same thing: notebooks and two-pocket portfolios in a handful of colors. "It was a sleepy little company with a commodity product," says Clay Presley, who joined as CEO in 2000 and became the majority shareholder in 2003.

But by the time Presley took over, that strategy was no longer feasible. Carolina competed not only with category killer Mead but also with low-cost exporters in Brazil, China, and Indonesia. In addition, the company's ability to create new products was hampered by its big investment in manufacturing. In general, if Carolina's machines couldn't make it, Carolina didn't sell it.

Margins were depressed, the company was running bone lean, and growth paths were not obvious. "We were having trouble making money," says Joe Hall, Carolina's former CEO, the son of its founder, and a minority shareholder. "We were a bunch of old paper guys. We knew we had to change but didn't know how."

A Teaching Moment

The new CEO had come to Carolina from Thomas Nelson, a Christian publishing house at which he had headed up the gift division. There, Presley had learned that products like photo albums and scrapbooks sell better when they are gussied up. Tweens and teenage girls lap up fashion -- defined by Presley as a combination of color, design, and personality. "A notebook is very personal," Presley says. "It's where you write your thoughts. Something used for self-expression should be packaged that way." Carolina, he decided, would trade on being fashion forward.

The switch from drab to fab required more than cosmetic surgery. Carolina's machinery wasn't up to embellishments such as acetate covers and four-color printing, so Presley and Hall made the painful decision to outsource manufacturing to Asia. Thirty-five jobs were affected, though 12 employees landed in new positions in the company; the rest received severance packages and outplacement assistance. The manufacturing equipment was sold to some suppliers. In addition, five salespeople left immediately, most for positions in the commodity world they knew. Thirteen more parted ways over the next eight years.

Old Paper Guys, of course, don't know what sets middle-school girls aswoon. But Presley did and moved to hire someone closer to the target demographic to both create designs and kick-start a new sensibility inside the company. He persuaded Jacqueline McFee, an artist he had known at Thomas Nelson, to forsake her Manhattan life and come dust off this Southern artifact.

It's hard to imagine two people more different than Hall and McFee. Hall, 74, has worked at the family business since the 1950s. He speaks in a slow and courtly manner and can tell you to a penny the impact of paper cost fluctuations on margins. McFee, 38, skitters along a mile a minute, ends most sentences on an up inflection, and is liberal with the Oh, my Gods. "I'd rather write on a luscious sticky note than a regular one," says McFee, in a typical expression.

Buyers at major retail chains found it easy to identify with McFee, and the designer spent as much time on the road meeting with customers as at her drawing table. Sales calls, once as plain vanilla as Carolina's notebooks, became performances in which McFee would use trend boards to demonstrate that products as diverse as Christmas trees and telephones were coming out in rich chocolate colors or in patterns echoing Victorian wallpaper. She would effuse over polka dots and shower buyers with socks that matched the colors and patterns she was pitching. Other women designers have since signed on, and they, too, make sales calls.

Presley also invested in market research, something almost unknown in a company not far removed from Henry Ford's approach to product variety. In addition to buying consumer studies and assembling its first focus groups, Carolina began sending McFee on trend-spotting jaunts around the U.S. and Europe. By combining quantitative research with McFee's anecdotal evidence, the company changed buyers' perception of the market and of Carolina's products from loss leaders to revenue generators. Target and Kmart provided early validation for the strategy.

The New Math

Carolina's new offerings cross buyers' desks in a motley blur. Product lines that were static for years now turn over every 12 to 18 months, and the company has acquired several additional brands. New items -- pens, mousepads, planners -- are always popping up. The two-person marketing department has expanded to more than 20 employees, including artists, graphic designers, and product developers. And although the manufacturing jobs are gone, new positions have sprung up to handle outsourcing. The company also operates an office in Hong Kong.

Since Presley closed the factory, Carolina's sales have more than tripled, and profits are up. Notebooks once tossed out three for a dollar now retail for $2.99 or more at chains in which the company traditionally had very little traction. "I would never have dreamed that a company like Family Dollar Stores would buy fashion goods," says the old paper guy Hall. "They said our designs 'have feeling.' I tell you, the teenage girl is the future."