I recently attended a business plan competition  sponsored by the Harvard Business School Alumni Association of Northern California. This event is part of an activity that is being staged in nine cities across the globe by the Harvard Business School Arthur Rock Center for Entrepreneurship .
Seventeen new ventures competed, presenting their concepts to an esteemed panel of 15 judges from the VC industry (such as IVP , NEA  and Mayfield Fund ) as well as a few corporate VC execs (Comcast and BMC) and angel investors. Another set of promising startups showcased their wares to more than 200 attendees at this successful event.
What I found most intriguing were the questions the team of Sand Hill Road VCs and other investors asked that revealed interesting insights about what they were seeking, and the inner workings of the Silicon Valley. Here's what I heard:
- Herd mentality can work in positive ways: VCs have often been criticized for chasing the same idea. Although it causes pain for the VCs (and investors) that bet on the wrong entrepreneur, it is good for innovation. As one attendee said to me,"When you run a 100x multiplier on an idea, where start-ups are iterating different product and business models based on customer feedback, you will innovate faster. With all the money flowing into Silicon Valley, where else can you run multiple projects in parallel and see which one succeeds after only a few years?" I wonder what other problems this type of parallel innovation could solve (we're seeing a bit of this in green tech).
- Being the first to disrupt an industry is not always a good thing: Although the VCs and angels were seeking disruptive opportunities, they are inherently investors balancing risk and reward. Being the first to disrupt can be expensive especially if it involves working through expensive legal and government approvals or if the market needs to be evangelized and primed. There is a large real estate development in Northern California where the initial developer spent millions gaining zoning and fighting environmental battles. They ultimately went bankrupt in the process. A second company took over the unfinished eyesore with approvals in place and much of the expensive grading complete. They profited handsomely from the development. The tech landscape is littered with failed first movers that were too early for broad customer adoption, but their efforts ultimately educated the market and paved the way for the successes we now think of as "first" through our revisionist memories (early social networking sites, MP3 players, touchscreen interfaces).
- "Frictionless" customer adoption essential: Even for large established brands gaining the attention and time of busy customers is difficult. For an unknown start-up, adoption spells the difference between success and failure. I frequently heard from the VCs and start-ups the term "frictionless." Anything that slows down consumer conversion to sales by requiring too many screens or making payment difficult was perceived as a huge weakness. Similarly, this concept also presented opportunities to unseat market incumbents by streamlining an unwieldy process for customers.
- Understand the economics of why some markets are unserved: A number of entrepreneurs expressed interest in serving small local businesses. "I want to serve the local pizza guy," said one entrepreneur. However, as one VC pointed out, reaching such small businesses even in just a local radius of about 5 miles can be very costly-which is why no one is serving them now.
- The business plan is a springboard, not a final outcome: We often think of the entrepreneur's business plan as the key ingredient to a start-up. Start-ups need to be wedded to market success, not a specific business model nor product design. Product offerings and monetization models are expected to evolve from the initial concept. The VCs wanted to see the ability of the entrepreneurial team to innovate and adapt to customer needs as much as the strength of business concept itself. One attendee said, "The business plan is a window into the mind of the entrepreneur. It is a way [for the VC] to see how the entrepreneur thinks."
- What is defensible and controllable about your intellectual property (IP)? Many of the entrepreneurs outsourced design and other activities in order to keep costs low and avoid overhead. Others set themselves up as marketplaces matching buyers and sellers. A number of the VC questions involved how an entrepreneur would maintain control over design or avoid disintermediation. "What's to stop consumers from working directly with a provider at a 10% discount once you've introduced them?" asked a VC of one matchmaking entrepreneur. Another asked, "Since you have outsourced this, what is to stop competitors from getting similar designs from the same supplier?"
- Have multiple exit alternatives: Hoping to be bought by Google (or Apple or Microsoft) isn't a plan, it's a punchline. There's nothing more common in the business plans that you see floating around the valley these days. One VC indicated that he wanted [to need] "Both hands to count the number of companies that could realistically acquire your firm."
Adrian Ott has been called, “One of Silicon Valley’s most respected, (if not the most respected) strategist” by Consulting Magazine. As CEO of Exponential Edge Inc.  consulting, she helps businesses gain advantage in today's turbulent markets. Follow her on twitter at @ExponentialEdge 
Adrian is the author of the forthcoming book The 24-Hour Customer: New Rules for Winning in a Time-Starved, Always-Connected Economy  (HarperCollins, August 2010).
Although the author is an HBS alumna, the views in this article are her own and do not represent the HBSANC, HBS, or its affiliates.