Scott Litman and I have been traveling in each others orbit for the last five years. In 2005, my wife Lisa and I met Scott and his business partner Dan Mallin when we entered the inaugural edition of the Minnesota Cup entrepreneurship competition, which the pair co-founded. At the time, the Cup was an unknown entity, but after receiving more than 600 entries that first year, Litman and Mallin soon confirmed their suspicion that Minnesota is an untapped reservoir of start-up activity. Type 1 Tools, our original product line of diabetes education tools that would eventually become HealthSimple, went on to place third in the 2005 Cup—a pivotal milestone in the development of that business. Litman and Mallin then became key advisors to Lisa and me as we navigated the complicated waters of our business acquisition with Johnson & Johnson in the years to follow.

In it’s five-year history, the Minnesota Cup has become a highly anticipated, and wildly competitive, fixture in the local business calendar with more than 1,000 entries last year and more than $100,000 in prize money on the line. In addition to their leadership of the Cup, Litman and Mallin have founded Magnet 360, a Twin Cities-based network of marketing services agencies. With the 2010 Cup deadline approaching (May 21), I thought it would be a good time to check in with Scott Litman. The following exchange is taken from a recent email conversation.

DP: Despite the growing profile of the Minnesota Cup, I continue to be a bit disappointed by the lack of successful start-ups coming out of the creative community. Do you see this same trend? If so, why is this the case?

SL: I know many creative professionals who are excellent “lifestyle” entrepreneurs. They work hard, they make a good living, they deliver value to their clients and they have a small team around them that they are able to take care of. In a lifestyle business, the economic rewards come from the compensation the entrepreneur makes through their earnings on an annual basis.

But, it’s a rare creative that is also wired to be a “growth” entrepreneur—building a business that can grow quickly and continuously. In a growth company, the real economic rewards come from building a business that has so much value, there will be the opportunity to sell the business at a premium in the future.

DP: You’re a successful entrepreneur and also leading a client-service-based creative business. Do you think the traditional model for creative businesses will be viable post-recession?

SL: There are many ways to interpret that question.

Do I believe that there is a great industry in creative and marketing services? One where customers hire creative professionals and allocate budgets for creative professionals with the goal of using marketing to reach their audiences and motivate action? Absolutely. Our skills will continue to be needed into any foreseeable future.

But, as our industry has done over our entire professional lifetimes…..the market, the service offerings, the client needs and the competitive landscape will continue to evolve rapidly.

Entrepreneurs and the businesses we build will need to constantly grow and evolve to stay ahead of this changing marketplace.

DP: We’re in a historically depressed economy and many people in the creative industries are hurting. It seems like this would be the time to be playing it very safe rather than taking the risk involved in launching a start-up.

SL: Recessions are great times to build a business. Many great companies from FedEx, Microsoft, CNN and Hyatt were formed in the midst of recessions.

The reason that recessions are such an attractive time to start new businesses is that while existing competitors are often left to grapple with budget reductions and cutbacks and they struggle to maintain their expensive infrastructure….startups can enter the market lean, efficient, hungry and with services that match what customers need today.

This is true in many industries and marketing services is no exception. This can be seen in the ongoing battle between the large traditional agencies and the small, nimble boutiques that so often are taking away projects and accounts.

DP: Other than the prize money, how can an entrepreneur benefit from participating in the Minnesota Cup and other business competitions?

SL: The prize money only goes to 6 entrants. So while this is nice, it impacts very few people.

Fortunately, there are benefits to many that go beyond the cash prizes.

All participants are challenged to write a better business plan. Entrants shouldn’t underestimate the value of a deadline and a competition that forces one to really think about what they need to put into a business plan – both for this competition and beyond.

Beyond that, semifinalist (45-60 teams) will have the opportunity to be introduced to a seasoned regional executive that will serve as a mentor for the month of the semifinal round. I’m impressed how many past semifinalist years later still have great relations with these mentors. Additionally, semifinalist will have their plans read by the review board of their division – a great opportunity to get exposed to some pretty amazing investors, business leaders and advisors.

For the Division Finalist (18 teams), there’s exposure gained in the business community via MN Cup PR. All division finalist are written up in the Twin Cities Business supplement and many were written up in various stories by other publications. Additionally, Division Finalist have the opportunity to present their plans in person to their review board. All MN Cup Division Finalist receive presentation training by Joan Moser of Spoken Impact which will help these businesses with how to present to our review board as well as to investors. Finally, several partners of the MN Cup put on seminars and workshops with subjects of interest to these participants (i.e. how to write a better business plan).

And for the Division Winners, not only are there cash prizes, but there are consulting / services awards from MN Cup supporters, more PR attention and a chance to meet in person with the Grand Prize Review Board.

DP: In what business categories are you seeing the most exciting innovation?

SL: It’s so hard to compare from category to category.

I get amazed at what comes out of the Social Entrepreneurs division – there are so many remarkable ideas on how to make the world a better place. The innovation that comes out of the Clean Tech division and the BioSciences division blows me away – even if I don’t always understand all of the tech (thankfully we have great domain experts as judges in those divisions). But for me personally, it’s easiest to connect with the entries that come out of the High Tech division as that’s where I have the greatest level of personal experience.

That said, last year we had excellent winners in both the General and Student divisions that were very competitive with the rest and no division takes the crown for innovation and entrepreneurism as that is alive and well across all six divisions.

For a recent MinnPost interview with Scott Litman, click here.