When Randy Adams announced he was taking a job with TheatreWorks, people told him he was nuts.

Leaving his position as managing director of the well-established Virginia Stage Company, he was moving out west to throw in his lot with what was essentially a large community theater.

“My colleagues thought I had lost it,” Adams said. “I said, ‘I just have a gut feeling about this place and [founder and artistic director Robert] Kelley and the work he’s doing.'”

Twenty-one years later, TheatreWorks is a powerhouse professional theater company on the Peninsula, and Adams has had a heck of a ride as its managing director.

Now he’s heading back east for his next challenge. The Palo Alto resident is leaving TheatreWorks at the end of June to move to New York, where he and a partner will launch what he calls a new “incubator” for musicals and some plays.

Their organization will work with playwrights, lyricists and composers, helping them hone their new productions until they’re ready to open. Then Adams and his colleague (whom he declines to name yet) will use their connections with theater companies around the country to help get the productions on stage.

“Many of the artists don’t have people to help them. They do work and it’s really great work, but there’s no network to get from one place to another,” Adams said.

Adams also plans to have founding artist-members on hand. They could help with such things as tweaking a song or making sure a play depicts a historic place and time accurately.

While the ebullient Adams is clearly jazzed about his new venture, he’s also quick to speak glowingly of the work that’s been done at TheatreWorks over the past two decades. During his partnership — and friendship — with Kelley, the company has grown from a $300,000 group to one with a $7 million yearly operating budget. There are an estimated 100,000 patrons annually.

“It’s been a remarkable adventure, thrilling to work with Randy over the years,” Kelley said. “Randy has engaged this community and has certainly helped TheatreWorks establish a national reputation in the process.”

Along the way, one of Adams’ favorite TheatreWorks projects has been the New Works Initiative Program, which has helped develop 39 new plays and musicals since 2000. It includes a writers’ retreat and commissioned works and is what gave Adams the idea to launch his own organization on a national scale.

A recent example was Tanya Shaffer’s “Baby Taj,” which had its first reading at the 2003 New Works festival. It premiered this season at TheatreWorks and has been the second most successful show this season (after the venerable “Into the Woods”), Adams said.

Adams, who originally hails from Ohio and has a master’s degree in directing from the University of Kansas, said the 36-year-old TheatreWorks started at a fortuitous time. There was more support for the arts from cities then; for example, Palo Alto allowed the group to use the Lucie Stern Theatre and other city facilities without paying. Nowadays, fledgling groups face enormous challenges in finding performance spaces they can afford, he said.

Over the years, TheatreWorks has benefited from several trends and events, Adams recalled. For one, after the 1989 earthquake, the road damage meant that locals were less likely to drive up to San Francisco for entertainment.

These days, the wealth of theater in the suburbs — Adams estimates there are some 360 theater companies in the Bay Area — has been another reason why people don’t always go to the city for their shows. The talent is close by, and gas prices are high.

Still, times are still not financially easy for arts groups, and TheatreWorks is not immune to the economy. Its board members say they expect to report an operating loss at the end of the fiscal year.

“Every year it’s that challenge of making it balance out. The good part is when you’re around this long you have stuff [budget reserves] to fall back on,” Adams said. “I applaud anyone who starts out in this venture today.”

One of the challenges is bringing in new patrons. Many TheatreWorks patrons have been around since its inception, and so the organization is constantly working to bring in new faces, Adams said. He singles out the quirky 2003 musical “Bat Boy” as something that brought in the young theatergoers.

Now TheatreWorks also has a new test on its hands: finding a replacement for Adams. A nationwide search has been launched.

“It’s difficult, but the process of making art here continues,” Kelley said.

As Adams prepares to leave, one scene from his TheatreWorks tenure glimmers in his mind: the organization’s 35th-anniversary gala in January 2005. He vividly recalls playwright Wendy Wasserstein and composer/lyricists Stephen Schwartz and Andrew Lippa on stage paying tribute to TheatreWorks, which had staged many of their productions.

“It was like one of those magical nights,” Adams said. “It put in perspective how far TheatreWorks had come. If Stephen Sondheim had been there we would have had to stop right there. What more could there be?”

Coming Up:

The next TheatreWorks performance is “The Sisters Rosensweig,” written by Wendy Wasserstein and directed by Robert Kelley. It opens April 5 at the Mountain View Center for the Performing Arts. For more information, visit www.theatreworks.org.

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