(FORTUNE Magazine) – SO YOU'VE got a hit. The product you nurtured in R&D, shepherded through - development, and coaxed past your board of directors is flying out the door as fast as the factory can crank. Distributors are clamoring for more. Revenues are soaring. Sales projections are going through the roof. Talented people are breaking the door down to work for you. You're hot. You're living the ultimate entrepreneurial fantasy. This is not the time to start singing ''Don't Worry, Be Happy'' along with President-elect Bush. Instead, you should focus on what to do for an encore. Plenty of people will testify that a good second act can be as elusive in business as it is on Broadway. Ask Adam Osborne, who invented the portable computer and then went bankrupt, or Henry Wendt, whose SmithKline Beckman grew fat on Tagamet -- and quickly grew torpid -- or Xerox and Polaroid, which became household words and then endured lean years, or the good folks at Volkswagen. Remember when they owned the U.S. imported car market? It may seem obvious that a well-managed company with a successful product should work hard on a follow-up. But what's self-evident is not easy. In fact, ''it's terrifyingly difficult,'' says Thomas Bonoma, a professor at Harvard business school. ''Nothing makes people as inflexible as success. They say, 'By God, if it worked the first time, it will work the second.' '' A whiff of success can intoxicate -- and a hangover can set in fast. Everyone sweated to make product No. 1 a hit, so it's tough to stop savoring victory and take on an uncertain future. After all, success has already produced a plateful of challenges in the form of rapid expansion and a flood of new employees. Steve Jobs, the former Apple chairman who has just launched his own second act with the Next computer, says new companies die more often of indigestion than starvation. Companies looking for a repeat success can take several different approaches that can be loosely classified as incremental, expansive, and innovative. The most common, and safest, strategy is incremental -- improving the existing product in small ways with more features, more power, more everything. Expansion means bringing out additional products within the same basic business. Both scenarios tend to preclude a blockbuster second act, but, Bonoma advises, ''If there are ten small opportunities, don't set yourself up to fail by going for the next big win.'' Some entrepreneurs will sneer at playing it safe and opt for innovation, acquiring or developing a completely different product. They want to swing for the seats. To hit a grand slam twice, a company must reach an unusual level of self-criticism and analysis. ''You have to figure out the basic reason for the first product's success,'' says Ian Mitroff, who teaches crisis management at the University of Southern California. Regis McKenna, a Silicon Valley marketer and venture capitalist, points to one reason companies have second-act problems: Success often transforms the organism that spawned the first product. ''The original developers become management,'' McKenna says. ''They don't want to dirty their hands doing the research and marketing they did the first time around.'' Organization becomes large and cumbersome: ''Democracy takes over. Everybody has his two cents and a horse becomes a camel.'' Some case studies that exemplify the three possible strategies:

THE INCREMENTAL APPROACH Consider the recent struggles of two computer software companies to duplicate their earlier successes. Lotus Development Corp. and Ashton-Tate, both initially lionized for their technological prowess, marketing acumen, and double-digit gains, have taken plenty of heat for their bumbling second efforts. With its 1-2-3 electronic spreadsheet, Lotus created the biggest-selling program ever. An estimated seven million copies are in use on IBM PCs and compatible computers. Ashton-Tate had a huge hit with dBase III Plus, the No. 1 data management program for personal computers, with users numbering in the millions. Both companies were textbook examples of the need for an incremental second act. 1-2-3 and dBase still hold 60% to 70% of their markets. Customers who have made a large investment in their products want gradual improvement rather than radical change; they are not eager to tackle the massive retraining that totally new programs would entail.

Executives at Lotus and Ashton-Tate concede that they tried the wrong approaches. ''We have wandered,'' says Jim Manzi, 36, president and CEO of Lotus. His most costly meander was Jazz, a multifunction program intended to open the Apple Macintosh market. After one upgrade, Manzi admitted that Jazz was ''an incredible disaster.'' In contrast, Ashton-Tate tried to grow by acquiring and distributing the products of independent software designers. This helped swell sales, but it hurt the morale of the company's own software developers and left employees unclear about the direction of the company. Ashton and Lotus had not ignored the need to improve their main products, but in juggling so many projects, their focus got blurred. Rapid technological change and contradictory customer demands for greater power and ease of use made the new versions of their software a lot more complicated. The new 1-2-3 had to be rewritten in a completely different computer language so it could run on different machines, from mainframes and workstations to Macintoshes and IBM PCs. The size of the program swelled from the original 100,000 lines of computer code to almost 330,000 lines. Lotus postponed the launch twice and now says it will be released in the second quarter of 1989.

Ashton had its own technical problems. Besides more power and user friendliness, customers wanted the ability to transfer data between incompatible computers. When the company finally shipped dBase IV in late October, three years had gone by since the last version of the program was issued -- an eternity in the software business. Admits President and CEO Luther Nussbaum: ''We didn't have adequate resources applied to the problem.'' The setbacks shook both companies, and they responded in remarkably similar ways. Both hired managers with big-company experience -- including executives from dreaded IBM -- to help them handle rapid growth and ensure a continuing flow of creativity. Manzi says Lotus has begun to appreciate the unique success of 1-2-3 and stopped looking for the next megahit. It has small teams of developers working on less ambitious software concepts, and recently launched Agenda, a new type of program to help managers organize disparate pieces of information. Ashton-Tate Chairman Edward Esber recruited Nussbaum from retailer Businessland to help him professionalize the company. He has also brought in experts in computer languages to assist in development. He sees his company as well equipped to help dBase evolve into a sophisticated system of information management that would handle all the needs of the modern office. ''We did go through a difficult time,'' says Esber. ''Now we are greater than the sum of the parts.''

The two companies paid dearly for taking the wrong approach. Lotus's repeated delays have dragged its stock down to around $17 from a high of $34.25 earlier this year. Ashton-Tate has lost market share to competitors.

THE EXPANSION STRATEGY A company contemplating a second act usually benefits from the name recognition its first product generated. Hyundai Motor America faces a fascinating challenge as it tries the expansion strategy -- overcoming certain associations with the product it initially introduced to the U.S. Hyundai's $5,200-to-$5,500 Excel is the No. 2 subcompact in the U.S. and the No. 1 subcompact import. The company is about to go hood to hood against tough competition by introducing a midsize car that's almost twice as expensive. Its new Sonata will compete against the Honda Accord, Toyota Camry, and Ford Tempo, all in the $10,000-to-$15,000 range. ''Historically, most automobile companies have begun at the entry level and only gradually moved up,'' says Greg Warner, the group vice president for sales and marketing. Hyundai decided to try a great leap upscale because midsize cars are one of the largest segments of the U.S. auto market and its Korean parent had a suitable vehicle. It is not surrendering its best asset: price. Company officials say that for several thousand dollars less than the competition, the Sonata will offer more interior space and comparable technology -- electronic fuel injection, for instance.

The higher-tech offering is important in a strategy that requires refashioning Hyundai's image from a maker of cheap transportation into that of a quality competitor. ''We have to sell the fact that the company is part of a giant conglomerate,'' says Warner. Hyundai has prepared ads that show locomotives and ships made by its parent company as well as commercials that extol the Sonata's virtues. Jack Collins, vice president of marketing for Hyundai Motor America, says the step fits the company's long-held strategy. ''We never planned to be the Excel motor company,'' says Collins. ''We want to be the Hyundai Motor Co.'' Christopher Cedergren of J.D. Power & Associates, an automobile market research firm, expects the leapfrog technique will work. He thinks Hyundai will sell a highly respectable 100,000 Sonatas next year.

THE INNOVATION APPROACH Going for the big win may be the reason SmithKline is still looking for its second act. Tagamet, the first really effective ulcer medicine, propelled the Philadelphia pharmaceutical company from a white-shoe also-ran to the top of the drug industry charts. Introduced in 1976, Tagamet became the biggest- selling drug in the world and the first to top $1 billion a year in revenues. Last year SmithKline owed 26% of its $4.3 billion in sales and 48% of its $877 million in operating income to its little green pills. But in the past five years, competing drugs from Glaxo, Merck, and Lilly have snatched 60% of Tagamet's market share. This year, for the first time in a decade, the company's earnings will decline. SmithKline spent hundreds of millions of dollars on research only to come up empty-handed. It has no drug in sight that could even approach Tagamet's enormous earning power. Industry analysts say the company became too dependent on its hit product, spent a lot of energy tinkering with troubled acquisitions, and moved too slowly to protect Tagamet when competitors came along. Says CEO Henry Wendt: ''You can't overprepare for the second act, or start too soon.'' SmithKline had two tactics for growth -- acquisition and research. In retrospect, says Wendt, that was not enough. For one thing, the company failed to make the kind of strategic alliances with promising biotech startups that have been increasingly popular with its competitors. SmithKline didn't contain turmoil in its R&D department, and bet too much on long shots. The lesson here: Success imposes an urgent need for first-rate management -- and for enough humility to consider the consequences of failure. For others, the big hit still beckons. The most daring strategy is to shift to a different product line entirely. Minnetonka, a Minneapolis health products and fragrance company, was founded by former Johnson & Johnson salesman Robert Taylor, now 53. He put his company on the map by launching innovative consumer products: Softsoap, a liquid soap in a pump bottle in 1979, followed by Check Up, an antiplaque toothpaste in 1984. Minnetonka sales went from $25 million in 1979 to $97 million in 1981 -- and back down again after aroused Goliaths like Procter & Gamble and Colgate-Palmolive moved in. Taylor decided he had to get out of markets where size has a big impact. ''Going against a company like P&G,'' he says, ''you can't make mistakes or you'll be buried in six months.'' Taylor got out gracefully. He sold Softsoap and Check Up and decided to focus on luxury goods with strong brand names. In 1983 he hired Robin Burns, then a 30-year-old Bloomingdale's cosmetics manager, to head the unprofitable Calvin Klein Cosmetics unit he had bought three years earlier. Burns worked with Klein to develop a perfume. The product, supported by a $17 million campaign of sexually ambiguous magazine ads and TV commercials, was Calvin Klein's Obsession, one of the biggest hits in the history of the scent trade.

! The cosmetics unit followed up with Obsession for Men and another perfume, Eternity. This year it will provide close to 75% of Minnetonka's estimated $200 million in revenues. Burns praises Taylor's marketing acumen, his willingness to take risks -- and his tough questions. To succeed in the second act, says USC's Mitroff, a senior executive, preferably the CEO, has to play devil's advocate with great skill: ''It's a fine line to walk, believing in a product and also asking the 'what if' questions.'' Taylor insists that the success of Obsession has not made Minnetonka complacent. Burns is extending the Calvin Klein line into accessories for women and some new products she won't talk about. Taylor is adding still other new items while looking for further opportunities. He has revived his ambitious dream of building the $1 billion company that he once worried was slipping away. ''There's no magic to what we've done,'' says Taylor. Even so, he has written that elusive second act brilliantly -- and is obviously eyeing a third.