Be a Bigger Magnet
About three years ago, Capsule—a Minneapolis-based brand development and design firm—received a request for proposal (RFP) to redesign Princeton University’s brand identity. It was a prestigious job that would have raised the tiny 10-person agency’s reputation nationwide. Aaron Keller, founder of Capsule, was tempted. But after reviewing the request, he declined to submit a proposal.
“The way they’d written the RFP, I knew they needed all kinds of experience in higher ed,” Keller says. “I just didn’t think we had the capacity to do the job right, so even though it was a great opportunity, I sent it back. But today, if we got that same request, I would definitely respond to it.”
Capsule is now a member of Magnet 360, a Minneapolis-based network of marketing, branding, design, and technology companies operated by digital marketing entrepreneurs Dan Mallin and Scott Litman. As a result, Keller’s small agency is partnered with 19 others from the Twin Cities area. And rather than relying upon the skills and background of his own handful of employees, he now has direct access to more than 450 industry professionals, including strategists, writers, graphic artists, and software designers.
In other words, Capsule could take on a job as large as the rebranding of Princeton University because it would be acting on behalf of Magnet 360. As the broker of such a deal—in essence, the general contractor—Capsule would receive a mark-up on the sale of all services. But as subcontractors, other members of the network would profit, too, sharing in business they otherwise never would have had, and collecting fees for the design work or other expertise they provide.
It’s an approach that represents the future of marketing, says Skip Gage, chairman and a principal investor in Magnet 360. Gage is also founder and CEO of Gage Marketing Group, which is a member of Magnet 360 and shares a Plymouth office building with the start-up.
“Magnet is completely different from the old agency model, where everything was built in house,” Gage says. “That model bred competition and inefficiency, and in a digital age we can’t afford to be so fragmented anymore. Dan and Scott understand that. And because of their unique combination of marketing and technology skills, I think these guys will be at the forefront of our industry.”
Dan Mallin and Scott Litman led oddly parallel lives until they met in the early 1990s.
They are 43 and 42, respectively. Mallin grew up in Milwaukee and went to Drake University in Iowa; Litman was raised in St. Louis Park and attended the University of Minnesota in Minneapolis. While in college, they held identical positions, as campus representatives for Microsoft.
Both men interviewed for the same job after graduation, as general manager of Zpix, a Twin Cities company that provided digital prepress services. Mallin turned down the job and signed on with 3M instead; Litman took it. But after only a year, Litman left Zpix and—together with Zpix colleagues Bruce Greenberg and Ray Uppaluri—started his own company in 1991: Minneapolis-based Imaginet, Inc.
“I saw the opportunity to help various businesses, such as advertising agencies and corporate marketing departments, make the transition internally to digital prepress,” Litman says. The change would allow his clients to do professional-quality typography and design on their own desktop computers, rather than hiring typehouses to design their printed materials. “So I signed with Apple and NeXT Computer and found a small sublease in a building downtown.”
In the beginning, Zpix resold hardware, networking equipment, and graphic-design software, setting up organizations such as Target Corporation and MSP Communications (the parent company of Twin Cities Business) with Macintosh computers they could use to do digital page layouts in house.
When Skip Gage left a position as CEO of Carlson Companies in 1992 to open his own marketing firm, he hired Imaginet to consult. The little start-up worked hard for Gage, bringing in dozens of desktop computers and training Gage’s employees to use the graphic design applications.
It was the start of an important alliance: Gage has been a supporter of Litman’s ever since. Between stellar references from that job and a worldwide turn toward in-house, computer-assisted design, Imaginet flourished.
Finally, in 1994, Litman and Mallin met on what they both refer to as a “blind date,” a happenstance introduction that resulted from Mallin’s wife knowing one of Litman’s former business associates. They quickly discovered the weird convergences in their lives, and Mallin joined Imaginet as a fourth partner before the year was out.
He and Litman were a perfect match. Litman brought business acumen, sharp ideas, and plenty of raw ambition to the equation, while Mallin was a charming and nearly savant-like techno-geek. Together, they grew Imaginet even faster and moved it into digital marketing.
“We saw that what we were doing in terms of digital prepress was becoming a commodity,” Litman explains. “Dan and I have always wanted to be leaders, and we saw that the ability for companies to use the Internet in order to reach their customers was on the horizon. So we went that direction.”
As a result, in 1994, they were an early local entry into the field of Web services: site and software development. Two years later, their then 20-person company launchedimation.com for 3M’s spin-off business in data storage media.
“This was the first multibillion-dollar company we knew of to live on the Web long before it was bricks and mortar,” Mallin says. “The day they announced the existence of Imation, there was already a 1,500-page Web site in place.”
Imation bought Imaginet seven months later. Litman and Mallin—both around 30 years old at the time—took undisclosed (but, Mallin acknowledges, “phenomenal”) payouts and ran Imaginet as Imation employees. But the fast-moving young innovators were a terrible fit for a slower-moving giant like 3M.
“It just wasn’t a good marriage,” Litman says. “I won’t use the word ‘hate,’ but we were both really unhappy on the inside.”
“If This Scares You, Don’t Enlist”
On their own again by late 1998, after they’d left Imation, the two partners started Spot Buy Spot, developing IT services and software to help media buyers in the advertising industry manage their advertising inventory. They sold it to Comcast for an undisclosed eight-figure sum in 2007. Another success, but it hadn’t been the sole focus of their entrepreneurial drive.
They’d also gone to Gage in 1998 and asked him to help them buy Imaginet back. He agreed, and they relaunched it as a limited liability company that year, with Imaginet acquiring Gage Internet Marketing Services. Within two years, they’d tripled Imaginet’s revenues to $14 million.
Investment houses approached them about underwriting an IPO, but the partners decided instead to find a strategic buyer—WPP Group, a British holding company—and sold Imaginet for the second time in 2000, at an undisclosed price that Litman calls only “a wonderful, life-changing event.”
This time, the marriage was happier. Litman and Mallin stayed on as president and COO, respectively, commuting to the parent company’s offices around North America and London. And they developed Imaginet—later renamed Connect @ JWT, a division of WPP’s J. Walter Thompson business—into one of the country’s noteworthy digital marketing agencies, growing it to $66 million in revenues, according to industry publications, before they left once more in 2004.
They were enjoying their success this time. But what was driving it opened their eyes to a new opportunity, and they realized once more that they were, at heart, start-up entrepreneurs.
Tools and channels for marketers to reach audiences were continuing to proliferate and evolve. And these new-media channels were fragmenting a once-mass audience, appealing to niche groups down to the most minute level and allowing them to consume content on demand. The sheer volume of content this unleashed meant that marketing messages had to be designed more precisely than ever to cut through the clutter and reach their targets.
Litman says, “Because so much delivery is in the digital domain or the nontraditional marketing space, you have tremendous opportunities for unique agencies that are able to use the technology”—often smaller, specialized firms, rather than the big traditional, integrated advertising and marketing agencies—“to do amazing things for their customers.”
Take, for instance, the United States Marines account that Mallin (then working for JWT) took charge of a few years ago. The marketing challenge: Recruitment messages had always gone out to a broad pool of eligible candidates, many of whom were woefully unsuited to become Marines. These broadcast calls to be one of “the few, the proud” resulted in a high wash-out rate among new recruits. It was costing the federal government time and money. The goal now was to get inadequate candidates to weed themselves out of the process from the outset.
“One of the things we determined was that we should really convey what it’s like to be a Marine through interaction with the Web site,” Mallin explains. The JWT-designed site showed video of recruits on rugged obstacle courses and drill instructors yelling, goading them on. The goal was to present a highly unromanticized view of Marine training. Many potential candidates visited the new site and opted out of further exploration because they were turned off by the reality, Mallin says, while desirable recruits were entranced and would watch the intimidating video clips over and over again.
“When we were growing up, the [Marine Corps] ads you saw were about proud individuals standing in front of flags,” he adds. “Those made everyone want to join. But we decided we could get people to self-eliminate by showing them what the Marines are really like. It was basically an ‘If this scares you, don’t enlist’ message.” JWT won a 2004 Silver Effie—the marketing and communications industry equivalent of an Oscar — for its “Pain is weakness leaving the body” campaign.
Mallin and Litman had done it as part of a global marketing giant, but it was what they had learned to excel at even earlier, with Imaginet. And with the new-media ground continuing to shift under the feet of the big marketing and advertising houses, they saw an opportunity opening up for marketing and technology firms as small as Imaginet had once been.
Glue to Make the Network Work
There was a noncompete agreement to wait out until January 1, 2008. In the interim, Litman and Mallin helped the late investment fund manager Gene Sit develop the Minnesotans’ Military Appreciation Fund. They served on the boards of several companies—among them Bellacor, Bard’s Tale Beer, Hardcore Computer—and were active angel investors. In 2005, Litman and Mallin developed and launched the Minnesota Cup, a competition for entrepreneurs that has become an annual event supported by Twin Cities Business.
When 2008 rolled around, the two men began making calls to marketing, brand development, and design firms that they admired and recruiting them to Magnet 360.
Their business model isn’t entirely new. Large holding companies, such as WPP, Omnicon, and Publicis, have long been acquiring and aggregating advertising and marketing firms.
The difference, says Jason Ulrich, president of the $7 million Web site development firm Popular Front in Minneapolis, is that Magnet 360 is genuinely cohesive. Every member business signs the Magnet 360 network agreement, committing to abide by the same rules (about everything from confidentiality to nonsolicitation) and to collaborate to serve customers well.
“Amazingly, nothing like this exists, even within the large public holding companies that own 100 percent of a large network of agencies,” Litman says. Beyond the agreement, he and Mallin advise their members on an ongoing basis to give them a shared point of view on the marketplace, business development strategies, and other topics.
“Magnet aligns us with a set of companies we can trust, because every one has been vetted by Scott and Dan, and there’s a level of integration I’ve never seen before,” Ulrich says. Members choose the assignments they want to accept—“there’s 100 percent flexibility,” Ulrich adds, but “we know the network will be accountable to the highest standards. I don’t know of another partnership that’s managed so well.”
Most new business for the network is generated by Magnet itself, which acts as a broker for those accounts, developing and assigning the components of a client’s marketing campaign—everything from overall strategy to e-mail blasts—to the member firm most suited to execute each part. Magnet 360 manages communication with the client and oversees the integration of services.
Litman emphasizes that member firms are always out developing new business for themselves. But whenever they believe a client needs broader capabilities than they have in house, they are also free to broker a project out to other Magnet 360 members.
Litman and Mallin say they have rejected several potential network members because the firms were territorial or did inferior work. They look for excellent portfolios, great service delivery records, and a history of working collaboratively with other agencies. Magnet 360 has taken nominal equity stakes in some member firms: Marketing Bridge, Valtira, enStratus, ARAnet, and Reside.
Mallin and Litman’s latest venture is in its infancy, having started a year ago with a combined $3 million from them and from Gage. The founders are two of Magnet’s five full-time employees. Their goals this year are to raise $4 million from investors, double their staff, add 10 more member firms, and expand into the Chicago-Milwaukee market, and ultimately to reach to the coasts by 2013. Their members’ clients are already national businesses, they point out.
“Dan and I have been responsible for creating three different businesses,” Litman says. “All three have had great exit events that rewarded their investors. But we believe Magnet 360 will be far and away the best thing we’ve ever done.”