(FORTUNE Small Business) – At first glance, Corrugated Replacements Inc. seems to be a model of manufacturing efficiency. The family-owned company turns out replacement parts for machinery that makes cardboard boxes. In a 50,000-square-foot factory nestled in the Blue Ridge Mountains of northern Georgia, huge forklifts load heavy steel cylinders onto moving conveyer belts. Workers in goggles machine the raw steel into hundreds of vividly named parts: worms, sprockets, strippers, kicker plates. A large banner bears the mantra WE HAVE AN INFINITE CAPACITY TO GROW AND IMPROVE EVERYTHING WE DO.

But it's the toys that really set this machine-tooling plant apart from the competition. Scattered across the factory floor are the accouterments of high-end recreation, including a classic Ford Mustang, several motorcycles, and half-a-dozen Jet Skis. The toys are the property of company owners Bob and Stan Lee, and they breed resentment on the shop floor. "We're not among the privileged who can enjoy such luxuries," says one worker drily.

Welcome to the house that Bob and Stan built, where the ruling class has always ruled absolutely. Launched by the Lee brothers 24 years ago in their family barn, Corrugated Replacements Inc. (CRI) has carved out a solid niche in the $25 billion corrugated box industry. More than 2,000 companies in the U.S., or nearly 80% of the industry, depend on CRI for parts and services. The profitable company boasts 80 employees and $7 million in annual revenue.

Yet for all its success, CRI now faces a strategic crisis: The market that Bob and Stan worked so hard to cultivate is slowly disappearing. Consolidation in the paper industry has wiped out nearly 200 box plants that CRI once served. Many of the survivors have moved overseas. At the same time, CRI's customers are investing in higher-quality machines that break down less frequently, requiring fewer CRI parts. "Things have really slowed down," says Bob Lee, 48. "I guess the silver lining is that nobody has come up with a better shipping container than a corrugated box."

For the first time in CRI's history, there's a palpable sense that the company lacks a clear strategic direction. The Lee brothers seem overwhelmed by the complex market forces reshaping their industry. On the plant floor, workers grumble that they feel undervalued and underutilized. Even more ominously, employees doubt whether either sales guru Bob or production czar Stan, 52, possesses the vision to navigate the company's uncertain future. "We are becoming stagnant and lazy," marketing director Blake Kidney lamented in his e-mail requesting a Small-Biz Makeover from FSB. "As one colleague said, 'We are making parts for an industry that has already died.' Our own death is inevitable."

Bob and Stan reject these gloomy forecasts, noting that annual revenues were up by a healthy 13% in 2004. But they admit that those numbers are getting harder and harder to achieve, and so they eagerly opened their doors to FSB's crack makeover team. We enlisted Wally Adamchik, president of Firestarter, a Raleigh-based marketing firm; Jim Shipley, a New Mexico-based consultant who specializes in business management and growth issues; and Bob Vosburgh, founder and president of 9g Enterprises, a consultancy based in Naples, Fla., that focuses on work processes and training.

The Lee brothers are a study in contrasts. Easygoing, diplomatic Bob runs the sales and marketing side, while intense, curmudgeonly Stan drives manufacturing. The company was founded in suburban Atlanta in 1981, but in 1997 the Lee brothers moved to the small mountain town of Blairsville, 120 miles north of the city. At dinner on the first night of the makeover, one of the consultants asks why the Lees decided to relocate. "Well, the truth is that Bob and I tend to spend a lot of time at our summer homes," Stan replies sheepishly. "Blairsville is centrally located between my place and Bob's."

While many successful entrepreneurs find ways to blend business and pleasure, the experts wince that such a major business decision was driven solely by Bob and Stan's leisure agenda. They are equally dismayed to learn that the brothers each drew salaries of more than $400,000 last year, which is high for a company their size. "They've created a lifestyle business," Jim Shipley says later, shrugging.

The next morning marketing guru Wally Adamchik strolls through CRI's factory and offices and senses that the Lee brothers' management style is hurting more than company morale. More than 80% of the 50 workers at the original plant in Atlanta, including the company's highly regarded plant foreman, chose not to follow CRI into the mountains. The Lee brothers were forced to hire a new and largely untrained workforce in Blairsville. Asked to compare CRI's current employees with the original crew back in Atlanta, Stan is noncommittal. "Let's just say they're different," he grunts.

This lack of confidence in CRI's workers is apparent in Bob and Stan's handling of inventory. Time is the most precious commodity for CRI's customers. Most box factories run nonstop, and when machines break, they need CRI to ship replacement parts quickly. In recent years, however, the Lee brothers have slashed inventory levels, making it harder to fill rush orders. That's because the price of steel has soared nearly 30% in the past couple of years. Management's solution to higher raw-material costs has been to hold 10% less inventory.

This policy infuriates CRI's salespeople, who want popular products to stay in stock, and factory workers, who want to stay further ahead of orders. It doesn't help that Bob and Stan rarely share inventory levels and other vital company information with their staff. The subject puts Bob on the defensive. "Look, we've never had a line of credit, never borrowed against anything that's not an asset," he says. "We've just always been conservative. And I'm sensitive to inventory being cash. As a salesperson, of course I always want the product right there on the shelf. But as an owner of this business, I'm not paying overtime to get it there."

Adamchik views the inventory issue as part of a broader problem. "I think raising the inventory level is an area worth investigating," he says gently. "You've got to ask yourself how many dollars you lose by not having something on the shelf. Also, you have people on your payroll who know what you need, and you have to start listening to them. I know it's hard to give up control when you've built a company with blood, sweat, and tears, but you need to start sharing information with your employees in order to maximize their output."

Consultant Bob Vosburgh uses his session with Bob and Stan to discuss CRI's morale crisis. Vosburgh surveyed about 30 CRI employees on a range of workplace issues. While a few of the comments were positive, the picture he got was of a thoroughly alienated labor force. "A pat on the back would go a long way with me," wrote one employee. "No training is provided," groused another. "Sink or swim is how I learned." One comment seems to hit Bob and Stan particularly hard: "In the time I've worked here, the owner has said maybe two words [to me and given me] no handshake when I've come through the door."

Stan admits that he has generally been quicker to scold than to praise. "I've gotten much less intense lately, I think," he says, reflectively. "It used to be that if somebody killed a part, I'd pick it up and throw it across the plant floor." Bob stares vacantly at the survey, shaking his head. "I don't even know when we hire people anymore," he admits. "There are people out there I haven't met."

It's also clear from the survey that CRI's employees increasingly resent what they perceive as micromanagement and favoritism. Stan's habit of hiring inexperienced managers to supervise veteran employees is a particular sore point. "Workers feel they have ideas that would help the company but are not being asked to share them," Vosburgh concludes.

The consultant suggests that Bob and Stan build time into their workday to connect with employees. He lays out a number of concrete steps to improve morale, ranging from performance bonuses to better benefits. And he makes one important request: no vendettas against the employees who took the survey. "Oh, I'm gonna track 'em down," Stan laughs. "All of 'em."

The survey discussion leaves Bob and Stan grim-faced. As they await Jim Shipley in the conference room, Bob points to an old straw hat hanging on the wall. "That was our granddaddy's," he says, glancing at his brother. "We started this company in Granddaddy's barn with some money he loaned us. We were just kids then, but he gave us some good advice, and we've built this company the best way we knew how. We're proud of what we've built."

Stan rolls his eyes when Shipley walks into the conference room. "I think we're at a point where we need to be built back up," he says. "Or are you here to shatter the bone down to dust?"

Shipley's mild yet forceful manner has earned him the nickname "Velvet Hammer" among colleagues, and he doesn't mince words here. "Look, you've built an impressive business, but you're at a crossroads," he says. "What you've done in the past has clearly worked. And I suppose the first option is to keep doing things the way you've been doing them. But if you do, the business will continue to decay because of increasing pressure on margins and operating processes."

CRI's other option is to grow faster. "But while you guys are very smart, it's just the two of you," says Shipley. "You're going to need some more horsepower behind this company." Shipley suggests that Bob and Stan hire a new general manager or chief operating officer and give that person equity in CRI. That would be a revolutionary step: Bob and Stan each own half the company and have never issued a share to anyone else. "At least in this aspect we've been pretty consistent," Bob says, smiling.

But Shipley argues that a new partner could help Bob and Stan formulate a new business strategy. It's not as though they have a choice. Because the corrugated box market is shrinking, CRI must develop new products if it wants to survive. One solution would be to partner with or acquire other manufacturers in different industries. But Bob and Stan lack the expertise and contacts to take CRI in that direction.

"Whatever decision is made, you've got to make employees part of the process or none of this will work," Shipley says. But by now Bob and Stan appear to have tuned out. At one point Stan says flatly, "Okay, so we can improve our company by using our resources in people better." Bob nods: "And we should think about bringing in a professional manager." The Lee brothers thank the consultants for their time and prepare to go back to work.

Out in the CRI parking lot, Shipley offers his fellow consultants a wager. "Who wants to bet me a hundred bucks that we come back here in a year and nothing has changed?" he asks. No one is willing to take the bet.

But as it turns out, a small wager would have been in order. Two months after the makeover, FSB checked in with Bob and Stan. We learned that CRI had started holding monthly management meetings aimed at improving staff morale and fostering better communication between departments. As a result of those discussions, CRI has placed a suggestion box on the factory floor and sweetened its 401(k) plan by raising the company's matching contribution by 25% (to 50 cents on the dollar). The brothers have also vowed to promote more managers from within instead of hiring them from the outside. And on top of its annual bonus plan, which is tied to years of service, CRI will reward its top sales and manufacturing employees with $500 cash prizes. "We've gotten a lot from these meetings," says Bob. "I think we're on the right track." In time, maybe the Lee brothers will even take their Jet Skis and other toys home--where they belong.