Serial Entrepreneurs Reveal Their Formula for Startup Success
Dan Mallin (left) and Scott Litman at Fueled Collective in downtown Minneapolis, where many a startup is born. Photo by Travis Anderson

Serial Entrepreneurs Reveal Their Formula for Startup Success

Scott Litman and Dan Mallin are the sages of the local tech startup world.

Every self-respecting tech company needs a foosball table in its office. Equals 3 has that, along with a couple of old pinball machines and vintage arcade games like Pac-Man and Centipede. But Equals 3 is not your average tech company.

You might expect an artificial-intelligence startup to be in the hip business capital of the North Loop in downtown Minneapolis, but its small offices are in a nothing-special 1980s-era building along Interstate 394 in St. Louis Park. The company’s founders are not millennial hot shots; they’re in their early 50s. Its greatest asset is arguably not its technology but its co-founders, leaders, and longtime business partners Scott Litman and Dan Mallin.

The pair are now tech legends in Minnesota, having successfully built and sold three companies. Technically, it’s four companies if you count the twice-sold Imaginet. They sold Imaginet Inc. in 1997 to Imation, bought it back a year later, rebuilding it as Imaginet LLC before selling it again in 2000.

In their spare time they founded Minnesota Cup in 2005, which has grown to be the largest entrepreneurial competition in the U.S. and helped energize the Twin Cities startup community. Along the way, Litman and Mallin have also been mentors and advisors to many local aspiring tech entrepreneurs.

“The thing that Dan and I have always had in common is the ability to recognize technology that’s going to change the way people do business,” Litman says. “You read Fast Company, you read Wired—there’s 100 great ideas out there, but not all of them work.”

For Litman and Mallin, their customers are typically early adopters, companies looking to harness technology to get ahead of the curve.

“There’s so much technology that comes out that it’s just a flashy light and spinning wheels and other things. We want to deliver competitive advantage,” Mallin says. “The idea is our clients are ahead of the game and leaders in differentiating with technology, and they look to us to drive it.”

But they no longer have time to spare a few minutes to talk to everyone in town with an idea and a plot to take over the world. “We could have coffee multiple times a day,” Litman says, “every day of our lives.”
 

A dynamic creation story

It’s hard to bet against Litman and Mallin, who have a perfect record for starting, building, and selling tech startups. The first company, computer retailer Imaginet, ultimately sold in late 2000 to London-based advertising giant WPP Group for approximately $17 million. Spot Buy Spot, a platform for selling ads on cable television, was acquired by Comcast in 2007 for an undisclosed price. Magnet 360, a marketing technology firm, was sold for $50 million in early 2016 to Mindtree, an India-based IT consulting firm.

Litman grew up in St. Louis Park, while Mallin hails from Milwaukee. But even when they didn’t yet know each other, Litman and Mallin were on parallel paths. While Litman was attending the University of Minnesota in Minneapolis, Mallin was at Drake University in Des Moines. Both worked as “associate educational support reps” for software giant Microsoft on their respective college campuses—holding two of only 100 such jobs in the U.S.

In the late 1980s, they both interviewed for the same job at a downtown Minneapolis company called Graphics Department, an early Apple dealer focused on digital printing. Mallin passed on the offer and went to work for 3M, but Litman took the job. 3M was a customer of Litman’s new employer.

In 1991, Litman and partners started Imaginet, which sold Apple and NeXT Computers; 3M became an Imaginet customer. The two became business partners in 1995 while Mallin held onto his day job at 3M, which spun off Imation in 1996; Imation went on a buying spree that included buying Imaginet in 1997. The company had pivoted from selling hardware to internet services, helping companies get online.

“I was transferred into my company,” says Mallin with a laugh.

A year later, Litman and Mallin bought it back with the help of Skip Gage, former CEO of Carlson Cos. and founder of Plymouth-based Gage Marketing Agency, who has been an important mentor and backer of their ventures. Liberated from corporate America, Imaginet grew quickly, reaching $15 million in revenue in 2000.

The late 1990s were the heady dot-com days. At a board meeting in early 2000, they determined that Imaginet was not growing fast enough to take it public. They devised a plan to sell the company; WPP acquired it at the end of the year. To say the timing was fortuitous is an understatement.

“We made a strategic decision with no idea that the end was in sight for the dot-com era,” Litman recalls. “The dot-com crash would come and businesses like ours would be worth pennies on the dollar.”

Working with ad agencies while working for WPP led to the idea for Magnet 360. The concept was to offer integrated marketing services through a single office at a time when large agencies had different disciplines in different silos. They raised the financing in September 2008, just before the market crashed. Skip Gage was the lead investor and chairman of the board.

“We would have been unfundable one month later,” Mallin says.

Once again, the company grew quickly, from $1.5 million in revenue in its first year to $8.5 million in its third year. Magnet 360 acquired several other businesses.

Although Magnet 360 was ultimately successful, Litman and Mallin made mistakes.

“The Magnet 360 pivot point was driven by a huge failure,” Litman says. “We invested in a business that failed. It was a massive distraction and it took a bunch of capital with it. … We were about ready to double down on the mistake, and Skip helped us see that there was a new way.”

Mallin recalls, “In effect, what he said is, ‘Don’t take down the whole business to save this investment.’”

Instead, they shifted the model from offering a network of agencies to offering direct service; it became an Inc. 500 company and was dubbed one of the Most Promising Companies in America by Forbes. San Francisco-based Salesforce, a big player in customer relationship management technology, invested in the third financing round, a precursor to the sale of the company.
 

MN Cup to Equals 3

Mistakes notwithstanding, success is the norm for Litman and Mallin; even their side hustles flourish.

“Along the way we created the Minnesota Cup,” says Litman, adding that so far the competition has had more than 14,000 participants. “We’re approaching a quarter of a billion dollars of capital invested in those companies or proceeds from exit events.”

Melissa Kjolsing Lynch was director of MN Cup from 2012 to 2017. She’s now CEO of her own startup, St. Paul-based Recovree Inc., which works with employers to provide recovery coaching services to employees struggling with drug and alcohol addiction.

“During that time they were still very involved with some of the bigger decisions that were being made about MN Cup,” Kjolsing Lynch says. “They were always very active.”

George Reese worked with Litman and Mallin at Imaginet. In 2003, he started Valtira, a marketing automation software company. Litman and Mallin joined his advisory board. Along the way, its cloud computing management technology was spun out as enStratus Networks, later renamed Enstratius. Dell Inc. acquired Enstratius for an undisclosed price in 2013.

“That’s really where their experience came into play; they’ve sold a number of companies under a variety of circumstances,” Reese says about Litman and Mallin’s perspective and advice. “We had a number of companies interested in us.” The sale of Magnet 360 closed in January 2016. The next day, Litman and Mallin dedicated themselves full-time to their latest venture, Equals 3. The company is still young, but has raised $8 million in financing.

The original concept for Lucy, its core product, was a tool for marketers to tap into artificial intelligence. But it’s morphing. In November, Equals 3 launched Lucy Pro, which can help businesses in any industry quickly sort through mountains of documents and data. Once again, it sounds like the partners have hit on potentially game-changing technology.

Litman says that Mallin’s greatest strength is having big ideas. Mallin says Litman’s greatest strength is the ability to recognize which of the big ideas will work and how to make it a reality.

“We love to build new things,” Litman says. Without Litman, “I could be sitting alone with just ideas,” Mallin says. “We’re endlessly optimistic.”
 

Litman/Mallin’s Entrepreneurism 101

1) It’s not for everyone.
“Not everybody is meant to be an entrepreneur,” Litman says. “People have different risk thresholds.”

2) Your idea is genius, but does anyone need it?
“It’s one thing: Can you build it? It’s another thing: Does it meet a market need that it’s so critical that people will buy it?” asks Litman. “Product/market fit is a huge challenge for any business.”

3) Recognize when it’s time to let go of your original idea to chase something more likely to succeed.
“Entrepreneurs who don’t pivot often end up in the ditch,” Mallin says. “Just because you’d said you’d take that hill, if the next hill over is where the victory is, we know how to get to the next hill over, and that is a differentiator.”

4) Two heads are smarter than one.
“We’ve always thought that entrepreneurism is a team game,” Litman says. “Dan and I have been business partners for over 20 years, and there is such a strength in having that sort of partnership. It’s not just trust, it’s not just having common beliefs and purpose; it’s [that] we are phenomenally complementary to one another.”

5) The harder you work, the luckier you get.
“We’re lucky, but we’re paying attention,” Mallin says. “If you’re just waiting for luck, it will never hit. Because you know you gotta play the chips to win the bet.”

Burl Gilyard it TCB’s senior writer.