I frequently surprise myself about how enthusiastic I can get when looking at a startup or a strong business idea. While I won't admit in public to thinking "can't miss," I suppose I've come close.

And it's always a mistake to think that way - even when things go well.

An idea is just the beginning of a venture. Successful prototypes are just one more step along the way.

Here's a practical way to think about "reducing risk" in a startup in a bit more detail.

Consider the major areas of what has to work (after a successful prototype) for the business to be profitable. These are the "killers" that if for whatever reason they do not work, the business dies. For example:

Pricing (P)

Manufacturing (M)

Distribution (D)

Success in beating competition (C)

Ongoing next generation research (Re)

Retaining key employees (Ke)

...and so forth.

Now, assign a probability to your team's ability to make each area work - getting it right. For simplicity here, say they are each 90% probable. Multiply all of those probabilities to get to the overall probability.

Do the math. (.9P) x (.9M) x (.9D) x (.9C) x (.9Re) x (.9Ke) = .53

So the "can't miss" in reality is closer to 50-50.

Every success or failure can be checked against this kind of matrix.

Consider what happens if an otherwise workable model can't be easily distributed and, in our example, distribution success is only 50%. Overall success probability drops to 29%, but, aside from that, it becomes evident that anything we can do early on to reduce the risk in distribution is early money very well spent.

This makes it evident that the work spent in planning to avoid the "Death Star" scenario in each area is required to assure success. Another way to think about this process is to get the right team in place whose experience can move through this process rapidly. Read Bill Sahlman's "How To Write A Great Business Plan" in the July 1997 edition of Harvard Business Review .

(If you don't think that experience is so important, next time you need a surgeon, ask if there's an intern available for a cheaper rate.)

Said another way, if the probability of distribution success changes to 100% because of your planning (a signed partnership agreement might be an example), the probability of overall success rises to 60-40.

I am making a case both for planning and for experience in the venture as a way of raising the probability of success. Give it a try.