If a theater could be compared to a woman, six years ago the Folger Shakespeare Theatre was a middle-aged divorcee, left to make her own way in the world although she'd never held a job.

Imagine, then, that a wealthy businessman took her under his wing, found money for her, introduced her to new people, gave her a new name and matched her with a Prince Charming who soon had her flourishing so that her ex-husband was occasionally jealous.

Michael Kahn probably wouldn't cast himself as the Prince -- he's too tall and too bald for the part -- but he has performed the role with style. Five years into his reign as artistic director, Kahn has accomplished more than anyone, including himself, expected.

People are fighting to get into the tiny theater on Capitol Hill -- this year to see Stacy Keach's mesmerizing Richard III or Avery Brooks's and Andre Braugher's amazing Othello and Iago. Last night the theater held its major annual fund-raiser, the Will Awards, for which Kahn managed to snare (through a friend of a friend) the new Shakespearean whiz kid, Kenneth Branagh, whose film of "Henry V" proved that the Bard can still be boffo at the box office. The gala, which starred former Kahn students Kelly McGillis and Christopher Reeve, was expected to raise more than $250,000 and attracted more than 40 corporate donors.

This week, previews begin for "King Lear," the Mount Everest of theater, which Kahn has directed with his old friend Fritz Weaver, a Tony Award winner. It's Kahn's first "Lear," and the run has already been extended one week and is 87 percent sold out. Other projects are being produced as well, including a two-week run of free performances in the Carter Barron Amphitheater, a summer acting program and a Young Company that performs in area schools.

Success, however, has presented a new set of problems that neither the board of directors nor Kahn had planned to face just yet, especially not during a recession. The theater is too small to produce the income needed to maintain an artistic level that will keep people coming.

Kahn set out to make the Folger -- now officially called the Shakespeare Theatre at the Folger to signify its separation from the Folger Shakespeare Library -- critic-proof, to develop a following and a subscription audience that would come no matter what the reviewers said. To a large extent he has succeeded. How he did that may become a textbook for other theaters; what happens next is a chapter yet to be written.

The numerical achievements -- the tickets sold, money raised, new programs started -- are but tangible reflections of a more intangible truth: Since Kahn took over, the productions have been better.

It's not that under the two previous artistic directors there were not good productions, because there were (although the theater's previous "Lear" does linger in the memory as excruciating). And it's not that Kahn hasn't produced a few clinkers (the recent production of "Fuente Ovejuna," directed by Rene Bush, was unloved by critics, although it still played to a respectable 87 percent of capacity). But with Kahn, even the less successful work has integrity, and the good productions are fantastic. Quite simply, they are more theatrical, employing the magical arts with panache, brio, and sometimes mischievousness. The voices are stronger, the colors are more vivid, the music is more haunting, and the smoke machine gets a regular workout.

The reason is probably that Kahn himself is a deeply theatrical person. Not flamboyant, but theatrical. This is someone who wanted to be a director, and wanted only to be a director, since he was a precocious 5-year-old in Brooklyn 45 years ago. He came with the credentials of having run three other theaters, and a reputation as a temperamental tyrant, given to tantrums and moodiness. He has proved to be far less volatile -- a man who gets what he wants through questions more often than demands, an instinctively smart politician, a genuinely gregarious and congenial fellow who after a mere five years seems to know everyone in town, from Cabinet secretaries and ambassadors to people who wave at him as they jog in the neighborhood. He's a great gossip, and he loves to laugh.

Kahn reveres but doesn't worship Shakespeare. He cuts freely, transplants speeches from one play to another, occasionally even changes a word to clarify meaning. Watching him in rehearsal you get the feeling the playwright is sitting in a bar down the street, waiting for Kahn to come in after rehearsal and say, "Now, Will, about that second-act monologue ..."

"Michael is brilliant, bright, high-strung, demanding -- all the things I like," said actress Franchelle Stewart Dorn, who as an employee might be expected to say nice things, but has never been known to hold her punches. "I never knew what demanding was until I met him. Even when I disagree with him, damn it, he's usually right."

"I always feel safe when Michael is directing," said Floyd King, one of six core members of the theater.

Everyone -- including Kahn -- agrees that the Washington Kahn is mellower than the younger, more New York-oriented Kahn. "When he gets angry, it's mostly out of frustration, so people forgive him," said another person who worked for him at the Folger.

"He hates lazy actors," said another.

Watching Kahn in rehearsal does not immediately reveal whatever it is that makes him someone actors want to work for. He seems so offhand. "Is this the start of the second act?" he asks. "Well, then we should have something going on between Goneril and Edmund and you come in and discover it."

After watching him several times, it is possible to discern a difference between a question and a reprimand. "What are you doing there?" can be either a gentle provocation to think, or, with a slight change of emphasis, a rebuke. There's a sense, too, that actors who do not know the answers to Kahn's questions are thought to have not done their homework, even though the questions would seem to be something the director should know, such as, "Is it nighttime in this scene?," even though he's acting as if he doesn't.

One of Kahn's first innovations was to hire a dialogue coach, Liz Smith (assisted by Ralph Zito), which is a bland name for a job that is really rooted in scholarship. At the first readings and later rehearsals, every word is analyzed not just for pronunciation, but also for meaning. Actors tend to pretend they know what something like "that slaves your ordinance" ("Lear," Act 4, Scene 1) means, even if they don't.

"Michael can always tell when you're faking," said Dorn, who is occasionally called "Mrs. Tupperware" by Kahn when she is not up to speed, an allusion to the fact that she lives in the suburbs.

Kahn loathes "pop" productions of Shakespeare, where "Romeo and Juliet" is set in contemporary Puerto Rico or something, but he takes pains to relate the events of a play to modern concerns -- that is, after all, the reason something is called a "classic."

"This play is about friendship, and about families -- dysfunctional families and what a real family is," he said at the first rehearsal of "Lear." "Shakespeare knew all about it. He knew about fathers and daughters who do not understand each other. ... Since I am a single child, I'll ask you for help in investigating that part. I had a perfectly dysfunctional family, but it was just me and my folks."

That family was in Brooklyn Heights, where his mother -- who had been something of a bohemian in her youth -- ran a dress shop, and his father was an electrical engineer. Kahn went to private schools -- Brooklyn Friends and Adelphi Academy -- of which his main memories are that he "ran everything and had no friends."

His mother had also read "A Tree Grows in Brooklyn," and as a result read Shakespeare to her son every night. By the time Kahn was 8 he knew all the plays and was able to impress everyone at summer camp, which, naturally, he despised otherwise. His parents also loved the theater, and would arrange outings with an elaborate ritual of deception that he remembers with delight. On someone's birthday, tickets for a current show would mysteriously appear, as though his parents had just wandered over to the theater and happened to get orchestra seats, and just happened to run into their best friends. Kahn remembers his mother pretending to sneak in to "South Pacific"; not realizing that she had actually bought the tickets, he was mortified.

His mother died when he was 13, and his and his father were not on the same wavelength. Kahn said his father didn't accept his career choice until he directed a musical called "Here's Where I Belong" and worked with Mitch Miller, who at that time had the sing-along television program, of which Kahn's father was a great fan.

After attending the High School of Performing Arts, Kahn began a checkered career at Columbia University, where he was hailed as a great student but also failed science so many times it took him seven years to graduate. He finally made it by taking a botany class and writing the answers to the exam on his hand.

By that time, he was already working off-Broadway. At 30, in 1970, he was running the American Shakespeare Festival in Stratford, Conn., where he spent summers for 10 years. In 1974 he also took on the artistic direction of the McCarter Theatre in Princeton, N.J., and also directed plays at regional theaters around the country, setting a pattern that he continues today: taking on more than one project at a time.

Toward the end of his stay at McCarter he also became co-director of the Acting Company, an outgrowth of the training program at Juilliard, where he still teaches. His schedule when he is not directing a play at the Folger is to teach in New York two days a week -- one at Juilliard and one at New York University. When he is directing, he teaches both classes on Mondays, the company actors' day off. In other words, he usually has no days off.

He lives in three places, including an apartment in Manhattan and a house in Upstate New York that he shares with Frank Donnelly, a psychotherapist and writer. Two years ago he bought a house on Capitol Hill that he furnished with modern furniture that he belatedly discovered is impossible for him to sit on.

Donnelly, with whom Kahn has lived for 14 years, visits Washington regularly, but works in New York. "The one thing that is worse about Washington than I expected is that I find it very homophobic," Kahn said. "For example, I get invited to a lot of dinners, probably because everyone is always desperate for a single man, but people rarely ask if I'd like to bring someone. Or even if they know Frank, they don't assume he would come too. That homophobia is something I'd like to help change."

He also has been outspoken during the past year's controversy over funding for the National Endowment for the Arts (its chairman, John Frohnmayer, is a neighbor and a friend). . When he isn't directing, teaching, administering, socializing, politicking or going to the theater (everywhere from the grand Kennedy Center to the struggling Woolly Mammoth), he collects books obsessively, reads them and goes to the movies. At the end of the year, he usually makes a list of all that he has seen and read (he is a Virgo) and last year noted about 75 books and 150 movies.

Kahn is the first to admit that he has changed during the past decade, both artistically and personally. His productions, he said, have opened up, become less static, and he chooses actors who have interesting looks rather than just going for the pretty ones. He is aware of how intimidating he can be, and that "if I squelch the stupid ideas I won't get the good ones." While he criticizes himself for sometimes being "aloof" and "not nurturing enough," people who work for him do not complain about that.

There was some grumbling in the theater community when Kahn first started bringing in "name" actors like McGillis, Keach and Pat Carroll (whom he cast as Falstaff in a brilliant stroke of non-traditional casting that no one believed would work). It was thought they were here purely to sell tickets, but nearly all have proved themselves serious actors, interested in "the work" (a favorite Kahn phrase) and willing to share a dressing room like everyone else.

"I don't believe in discriminating against an actor just because he's well known," Kahn says, with a smile.

Setting the Stage One of the ironies in Kahn's becoming the Folger's artistic director is that he was a member of the NEA panel that had voted a few years previously to gradually withdraw funding from the theater "because the level of the work did not meet artistic standards." By the time he took over, NEA funding had reached zero.

The theater was started 20 years ago by the late O.B. Hardison, who as head of the Folger Shakespeare Library wanted to have some life on the historic stage that is part of the original building. The library, which is administered by Amherst College, agreed, and Hardison installed the late Richmond Crinkley and a director, Louis Scheeder. They produced Shakespeare and a series of contemporary plays, filling two needs then open on the Washington theater scene. But when the library trustees announced a $400,000 budget cut, Scheeder bowed out and a member of the acting company, John Neville-Andrews, took over, believing he could produce a respectable season with very little money.

"They had agreed to conditions under which good work was not humanly possible," said Kahn. Plays were produced with only four weeks of rehearsal; given the performance schedule, actors could rehearse barely 20 hours a week. There were nights when fewer than 50 people showed up for a performance. At the same time, the theater could not raise money on its own because it was part of the library. After a few years, the Amherst trustees decided the theater was an expensive luxury and announced the end was nigh.

To their surprise, the community objected, and people as disparate as Sen. Daniel Patrick Moynihan, Elizabeth Dole and Miss Manners (Judith Martin) rallied to save it. After a great deal of effort, Robert Linowes emerged as the head of a new board that would govern an independent theater, which would perform in the Folger's building. They raised money and sought advice -- from, among others, Michael Kahn.

"I told them the quality of the work was the most important thing," said Kahn. "I don't believe that a theater has to survive just because the building is there. ... They essentially didn't have anything except a name, and goodwill from the community based on a space they didn't own."

Kahn had already had experience at McCarter, Stratford and the Acting Company, and he had learned at least two things: He hated budget meetings, and he would no longer make decisions rooted in money rather than art. On the other hand, he liked the idea of doing Shakespeare on a "small canvas" after the vast expanses of Stratford, and of creating a work environment in which he could test all his theories. He envisioned a "classical" theater, as opposed to a resident or repertory theater, a national standard, with, ultimately, a companion conservatory to train the actors of the future.

But first he had to get people -- actors and audiences -- to come to the theater.

The board let him work at a deficit for two years. He trimmed in some areas, cutting the number of productions from five to four per season and axing smaller items like a three-color brochure in favor of a one-page black-and-white letter. He expanded in others: longer runs, better housing for the jobbed-in actors, more money for sets and costumes, a longer and informative newsletter that goes to subscribers before the play opens instead of after. He brought in a professional fund-raiser and took other initiatives to develop audience loyalty and increase the theater's ability to be critic-proof. For example, the neighborhood was invited to a free "open rehearsal" at the start of the season, a festive event that last fall produced lines down the block of people wanting to watch Keach and his colleagues "rehearse" "Richard III."

(Overheard on a Capitol Hill street around that time: 8-year-old girl complaining to mother, "How come Michael got to go to "Richard III" and I didn't?").

He started Saturday acting classes, taught by members of the company, which brought in more enthusiasts and more money for the actors (and more work, of course). An internship program was set up with the University of South Carolina, and an "Intensive Classical Training Program for Professional Actors of Color" was set up in 1987. He also started the Young Company, which mounts jazzed up, hour-long versions of Shakespeare plays for the hardest audiences in the world: teenagers in area high schools.

The budget has nearly doubled, to $3.9 million this year, and the number of subscribers has increased by 20 percent in each of the past three years, to a new high of 8,175. The actors are so used to playing to "105 percent capacity" that if there's an empty seat they get depressed. The deficit is paid off.

But. There is a but, and it's hard to explain. With only 243 seats in the theater, even if every single performance is sold out, the theater can earn barely 50 percent of its budget. If ticket prices are increased further (they top out now at $42), the young and the less affluent will increasingly be excluded, reducing the company to a sort of boutique theater that goes against the very foundations of a popular art.

Kahn and the board are worried that people who can't get tickets, whether because of the expense or the lack of availability, will soon stop trying. The great reservoir of goodwill and support the theater now enjoys could dry up quickly. Extending the runs (now eight or 11 weeks) would be hard on the actors physically and -- for the well-known names who work here for less that $600 a week -- financially. The only apparent answer is to have more seats to sell, and that means another space.

At the same time, the audience has enormous affection for the tiny Folger stage, which can provide an intimate theatrical experience that is hard to find in these days of multi-million-dollar shows in huge buildings. But the theater has other downsides too: There is very little space offstage; the offices, studios and design shops are scattered among five locations on Capitol Hill; there are two immovable columns in the middle of the stage that drive directors and designers and actors crazy; and it's so dry and dusty that visiting performers demand humidifiers and pre-show sprays. And it only has 243 seats.

The board and Kahn are wrestling with this problem, and have made no decisions.

They are considering the possibility of making a deal to work in the only theater space opening soon in Washington: the old Lansburgh Building, which when renovated will include a new, nearly 500-seat theater. No offices or scene-building shops, but a nice, intimate theater, where the Shakespeare Theatre could have six-week runs. Or they could transfer a successful production from the Folger to Lansburgh, or reserve the smaller hall for more obscure plays that are not likely to attract huge audiences. It's a major decision, and they're not quite ready to talk about it yet.

"I never thought we'd be talking about this problem at this point," said Kahn. But he seemed mighty pleased that they must.