By Bethany Mclean

(FORTUNE Small Business) – Until recently, Steve Demos existed on the fringes of both the food world and the business world. In 1977, Demos, then 29, founded a company called White Wave in Boulder, Colo. From the beginning, White Wave had a difficult mission--the "creative integration of soy into the average American diet." Actually, to call it difficult is probably an understatement. After all, when most people think about soy, they picture a quivering white clump of tofu. Healthy? Sure. Appetizing? Ick.

But Demos, an ex-hippie, believed in his idea, and he had the fortitude to stick with it after most other entrepreneurs would have quit. Surprise, even in the new economy the best ideas don't have to succeed overnight. Demos spent the next two decades in his kitchen and on the road, trying to market every soy product imaginable (and some, like "soy-sage," that were probably best left unimagined). Only in the past few years has that persistence paid off, with a soymilk called Silk. Demos came up with a way to make soymilk taste less, well, icky, and also had some good ideas about packaging and distribution. That has helped Silk break out of the health-food category and go mainstream, and helped sales at White Wave grow from $6 million in 1993 to $29.6 million last year to $81 million this year. "You can't control timing," Demos says. "You just have to work hard to be present."

Now 52, Demos is still something of a child of the '60s. He wears his sandy hair long, practices yoga for a half-hour each day, and lives in a handcrafted wood cabin 8,500 feet up in the Colorado Rockies. Because of his experience at White Wave, he has had to develop a Zen-like attitude about timing. Obviously, his is not a story of overnight success. Instead, it's one of passion and persistence against long odds. But in Demos' view, Silk is only the beginning of a soy explosion that will turn White Wave--a private company with 120 employees--into a major force in the food industry.

Sitting in a sparsely furnished conference room at White Wave's headquarters, an old dairy on the outskirts of Boulder, Demos flips through a presentation likening White Wave's story to the fairy tale Jack and the Beanstalk. (Remember the boy who traded in the family cow for a handful of magic beans, found the goose that laid golden eggs, and ran away from the giant?) To fulfill his mission, Demos will have to fend off an onslaught of competition from Big Food, which sees soy not as a miracle food but as a way to spark stagnant sales. Like Jack in the fairy tale, however, Demos says he's not afraid of giants. "You can't be in business for 23 years waiting for the pearly gates to open and then get scared when they do," he says.

Surprisingly, Demos was not born with a passion for soy. He grew up a meat-eating Philadelphian, graduated from Bowling Green State University in 1970, and did what you were supposed to do if you graduated from college in 1970. He and a friend (Pat Calhoun--who today serves as White Wave's CFO, or, as her business card reads, "chief bean counter and VP of small change") flew to Europe, hitchhiked to New Delhi, and stayed for four years. Demos returned to hippie-friendly Boulder as a vegetarian and struggled to juxtapose the antiestablishment ethos of the early 1970s with his desire to make money. The answer, he decided, was tofu, which Demos started making with a $500 loan from his upstairs neighbor. His first sales were to members of his tai chi class.

Today, Demos describes soy as "the roughest and toughest business there is." That's perhaps an exaggeration, but White Wave bounced around for more than two decades as Demos experimented with soy-based foods. "At one time Steve had 200 products out there," recalls Peter Golbitz, an industry consultant who has known Demos for 20 years. "He'd just throw products at the wall and see what stuck." A low point came in the 1980s, Demos says, when a Los Angeles Times poll named tofu the second-most hated food in the nation, right behind liver.

White Wave's real success didn't come until Demos started selling Silk, which didn't reinvent soymilk so much as reposition it. Before then, soymilk was sold unrefrigerated, in squat, unappealing, aseptic packages--what Demos describes as "Armageddon food." His genius lay partially in taste--components like sugar, vanilla, and sea salt that could disguise the beany flavor--and partially in packaging. He sold Silk in the classic gable-topped milk carton, making it far more attractive to squeamish American consumers. He also put friendly instructions on the package like, "Shake well and buy often," and stocked Silk in the dairy case, right next to regular milk.

Demos's marketing also had to be innovative, given that Silk costs about 50% more than dairy milk and that most people are reluctant to even try it. The solution? A mix of by-the-books brand building and creative flair. Last year, White Wave spent $10 million on an ad campaign that featured tag lines like "Think globally, spoon locally," and "Have a nice life span," and gave away more than three million half-pints of Silk in 5,000 stores. (Demos thinks that in-store tastings pressure consumers too much.)

And he was smart enough to find strategic partners when White Wave started venturing into territory it couldn't conquer on its own. Getting distribution in the supermarket dairy section isn't easy. Shelf space is limited, competition is ferocious, and refrigerated foods are expensive to transport. So in August 1999, Demos inked a deal with Dean Foods, the nation's second largest dairy, which took a minority stake in White Wave in exchange for help with distribution. Two years ago, only 100 U.S. supermarkets stocked Silk. Today, it's in 25,000 supermarkets--80% of the country's supermarkets--in flavors ranging from plain to chai to chocolate. "Steve is a great leader," says Lou Nieto, president of national refrigerated products at Dean Foods. "He's a true believer, and that's infectious. White Wave has significantly exceeded any of our expectations."

In October 1999, Demos finally got some luck with his timing, when the FDA declared that consuming 25 grams of soy protein per day can lower cholesterol and reduce the risk of heart disease. The American Heart Association upped the recommendation in late 2000 to 50 grams. (One eight-ounce glass of Silk has 6.25 grams.) The changing demographics in the country are in Demos's favor as well: A high percentage of African-Americans and Hispanics are lactose intolerant, which means increasing numbers of people could switch to non-dairy milk. All in all, people have plenty of reasons to try soy--which is why Demos's dedication is finally paying off. "If you push something on a nonfriction surface, you can judge how far it's going to go by how hard you push," he says.

Whether from a lack of friction or Demos' force of will, Silk sales have more than doubled every year since the product was launched. It now controls about 80% of the market for refrigerated soymilk. People genuinely--we're not kidding--seem to like it. In fact, in an informal taste test conducted by Good Housekeeping, chocolate Silk beat Hershey's chocolate milk. "Silk revolutionized the category," says Tim Sperry, a purchasing director at Whole Foods, the nation's largest chain of natural-food stores.

Demos's mission hasn't been a solo one. He's had help from CFO and college friend Calhoun, who has been with the business from the beginning. "We've fired each other a couple of times a year," says Demos. About five years ago he hired Sheryl Lamb, a former Peace Corps volunteer in Guatemala and a natural-foods guru, to head sales and marketing. Demos also hired another old college friend, James Terman, to create alluring packaging after James sent him a postcard of an unemployed man with the phrase "Will work for tofu" on it. "I didn't pick MBAs, I picked cultural connects," says Demos.

Industry observers say that the company still has plenty of room to grow. Golbitz, the consultant, predicts that total soymilk sales (including nonrefrigerated soymilk, which is growing at a less rapid clip) will hit $1 billion by 2005, up from $420 million today. That may sound gargantuan, but the numbers are a drop in the pail (ouch) compared to cow's milk. According to Golbitz, soymilk consumption on a per capita basis is about 1% that of cow's milk. Even at $1 billion in sales, soymilk consumption would comprise just 2.5% of that of milk.

White Wave, of course, has even higher expectations. "If you don't plan for success, what are you going to do when you get there?" Demos asks. The company is finishing two processing plants, in Utah and New Jersey. "We call them our stainless steel cows," he jokes. (Proving that White Wave hasn't gone corporate, before breaking ground on the Utah location, the company spent $4,000 relocating 26 prairie dogs that lived in the region.) Next up on the menu: Single-serve bottles of Silk, sort of like Starbucks' Frappuccinos.

White Wave also plans to launch other soy products. It already sells a line of soy yogurt, and Demos has not let go of creating a more palatable form of tofu. If he gets his way, soy will be a food for all hours--on cereal at breakfast, as a snack in the car, as a meat substitute at dinner. It may happen. "Steve has a head full of ideas, and he's an aggressive marketer," says Golbitz. For his part, Demos predicts that White Wave's sales will quadruple to more than $400 million in the next three years. "You're witnessing something very rare--the emergence of a new food category," he says. "We're like a big happy Golden lab that wants to go sniffing after every opportunity."

Of course, a few other big dogs have started noticing those opportunities lately. "We've seen dozens of manufacturers jumping on the bandwagon," says Michelle Walker, a new-products coordinator at Wild Oats, the nation's second-largest chain of healthy groceries. "Every third sample we get is something soy." One major contender is the nation's largest dairy, Suiza Foods, which launched its refrigerated soymilk, Sun Soy, in January 2000. At press time, Suiza announced plans to acquire Dean Foods, Silk's distributor. It's unclear what this means for White Wave, but officials there express confidence that it creates a bigger opportunity. ("Who would ever have thought we'd see the largest dairies in the U.S. selling soymilk?" asks Golbitz.)

Another challenger is Hain Celestial, which is 20% owned by Heinz. Its Westsoy is the market leader in unrefrigerated soymilk, and Hain Celestial is now marketing a refrigerated version. "Our target is every customer that drinks cow's milk," says natural-foods president Andy Jacobson. "Aiming after White Wave is aiming too low." Counters Demos: "We're going to be outspent, so we have to outthink."

Jack and the Beanstalk ends with Jack outrunning the giant, and Demos is confident he'll find a similarly happy ending. "I've got the goose," he says. "I'm racing; they're chasing." And the market for soymilk is Silk's to lose. There's a lot of value in being the first to establish a national brand name (think Gatorade), and stores often aren't willing to clutter their shelves with many brands of the same product. Whole Foods, for example, carries Silk, its own private-label brand, and maybe one regional brand. "We're not going to dilute the category and confuse the customer," says Sperry. Predicts Ellen Baras, who covers the food industry for the brokerage firm William Blair: "Silk is dominant, and it will stay that way."

In the world beyond soymilk, Demos may start facing even bigger giants. According to Golbitz, the overall market for soy foods is $2.5 billion and growing at 22% roughly 10 times the growth of many "mature" food categories. Behemoth food corporations have already established beachheads in many areas. Over the past few years, Kellogg has purchased Worthington Foods, a big player in soy burgers, and has since introduced a soy-based cereal. Heinz, in addition to acquiring its stake in Hain Celestial, is test-marketing a line of soy products dubbed Great Awakenings, and Westsoy is rolling out soy smoothies and shakes.

Demos says that White Wave has a key advantage over all these competitors: It has a mission, and it's been doing this for a long time. Dismissing the big guys, Demos says: "They have business units, not passion. So they'll see things differently." FSB Online Read the Progressive Entrepreneur on the first Monday of every month for information on how to create a socially responsible business.