The Problem

John McDonald didn't have enough beer. His company, Kansas City-based Boulevard Brewing, billed itself as the "second-largest beer company in Missouri," a tongue-in-cheek reference to No. 1, Anheuser-Busch. But Boulevard's brewery wasn't big enough to keep up with demand. By 2005, revenue was around $17 million, and demand was so strong that distributors sometimes had to wait three weeks for their brew. McDonald saw three options: He could cap production and raise prices; construct a $15 million factory next to the current one; or open a cheaper facility in the suburbs. The more expensive urban factory would mean $2 million a year in debt payments. But McDonald was committed to Kansas City, and he decided it was worth the risk. In March 2005, he and his partners obtained an $18 million loan, and construction began. By the time the facility was completed in late 2006, the cost had reached $25 million.

What the Experts Said

Marilyn L. Taylor, a business professor at the University of Missouri, Kansas City, said Boulevard's owners were smart to choose debt over equity financing, because it allowed them to maintain control. Mattson Davis, CEO of Kona Brewing in Kailua-Kona, Hawaii, said Boulevard should have considered brewing at someone else's facility. Trish Karter, CEO of Dancing Deer Baking in Boston, said, "They will have less margin for error down the road."

What's Happened Since

"The new facility has been great," says McDonald. Because the company has been able to satisfy rising demand, revenue has grown about 18 percent this year and should be $25 million in 2008. McDonald is so optimistic, in fact, that he recently took out a $5 million loan for a new bottling facility. The weak economy, however, has kept sales growth slower than he would like, costs have risen, and he is shelling out $4.1 million a year to pay down the debt. But McDonald says the company is profitable and he has plenty of cash on hand.

What's Next

Boulevard will produce 138,000 barrels in 2008 -- up from 90,000 barrels in 2004. Boulevard's new Smokestack Series features beers that come in a champagne-esque bottle with a cork and wire. McDonald plans to roll out these beers beyond Middle America, to coastal beer geeks willing to spend $7 or $8 for a fancy brew. Oh, and he notes that Boulevard is now "the largest American-owned brewery in Missouri."