(FORTUNE Small Business) – MADHOUSE MUNCHIES, a maker of potato chips in Colchester, Vt., sells its chips in bags with a clean, distinctive, fun design. But the packaging didn't always look that way. When Jim Ehlen launched the company in the late 1990s, he designed the bags himself, with the help of a friend. Within two years Ehlen, now 35, captured $500,000 in annual sales and shelf space in a few hundred independent retailers on the East Coast. But he realized the packaging wasn't attractive or informative enough to appeal to consumers or the wholesale buyers at large retail chains. "I built the company by standing next to a bowl of our chips and talking about them, "he says. "Without me, the packaging wasn't telling the story."

Ehlen hired a New York City design firm, R. BIRD, after being approached by the firm's creative director, Joseph Favata, at a trade show. "His bags looked like rat poison," says Favata. "Any buyer would've said, 'It's not going to sell, 'and moved on."

Several months and four prototypes later, Madhouse Munchies' new logo and bags hit the market in July 2000. (Ehlen declined to say what he paid for the makeover, but similar projects typically range from $50,000 to $100,000.) In six months, with no new advertising, Madhouse was selling about 50 more bags of chips a month in every store. By year's end its chips were in 1,000 new retail locations, and today, with the same packaging, the company is adding more than 100 new retailers a quarter. With revenue of nearly $10 million, it sells its chips in large grocery chains such as Price Chopper, Publix, and Stop & Shop. In April it inked a deal with food-service provider Sysco to have its chips distributed to Orlando-area resorts. FSB asked Ehlen and the staff of R. BIRD to explain the redesign process in the captions above.

DESIGN

ORIGINAL Pale cartoon characters are supposed to differentiate the flavors, but buyers get confused. The jumble of text in the logo is hard to read, says Favata. And, he adds, the color scheme ("heavy on the black") looks too much like the packaging of competitors such as Terra Chips.

PROTOTYPE 1 "This bag is more about being a gourmet product," says R. BIRD founder Richard Bird. He also introduced a mascot, Munchman, as a vehicle for future marketing schemes. But Ehlen, who wants to sell to a variety of customers, feels the original logo (at top) should be more prominent "to reinforce our brand recognition," he says.

PROTOTYPE 2 The logo is bolder and the lettering is easier to read than on the original, and each flavor now gets its own color. Bird feels that the swirling background will stand out on the shelves. But Ehlen says that the bag, especially the main panel of text, is too serious, and that Munchman still overshadows the logo.

FINAL VERSION The logo is large and centered, and the bags' colors, Ehlen says, are bold and simple. There are no characters, but the success of Madhouse Munchies has led the company to bring out a new product—tortilla chips—which debuted this spring and features the character shown on prototype No. 2. In other words, Munchman lives.