Sandy, Hospitality Manager—Madison Music Foundry
(Mike Olson)
Every Tuesday evening I make the same trip down McKee Rd, turn left on to Fish Hatchery past the crumbling remains of my father’s former workplace. I turn right on Greenway Cross and then another right onto Index road. Once at our destination my son pulls his used Les Paul out of the trunk along with a folder full of music books and tabs. In through the door we go; the waiting room is full and will be until the 6:00 pm lessons are over. At 6:35 my son’s instructor comes out and gets Ev. I settle into a comfortable old couch while Sandy, a Katrina rescue and the resident hospitality manager, comes over for a pat on the head and a belly rub.
Business is booming for the Madison Music Foundry—one of the last places in Madison to offer private music lessons. Gone are Forbes Meagher and Good n’ Loud Music. Ward Brodt stopped offering music lessons just a few months ago.
A couple weeks ago the following status update appeared in my Facebook News Feed:
Madison Music Foundry—Today ends ALL ties of the Foundry to M&I bank!!! Today we switched to a local credit card provider (Wind River Financial) from M&I Merch. Service and last Nov. refinanced all loans and moved all accounts to McFarland State Bank which unlike M&I, actually cares about its customers/businesses/community. It feels great to sever all ties (M&I) with a financial institution that has such a terrible track record over the last year. This is the end of a long and bitter story, but in the end everything has worked out and we are better off. Many thanks to everyone at McFarland State Bank, SBA & WHEDA for believing in the Foundry. Sorry, M&I, but saying that you support small business and actually supporting them isn't the same, walk the talk. That goes for politicians too...
note of interest. never late with a single loan payment in the 4 years of getting the business started and last spring M&I wanted to call the loan early...reason...none given...my guess, to clean the books off of small biz loans to make it an easier sell to Harris. Bad Bank, booo”
I have taken my son to the Foundry for over a year and I too have taken lessons as my “learn how to play guitar in an hour” lessons had been going on for about six years and I had barely progressed from playing an A chord, so I was somewhat concerned to hear of the issues that MMF had had with M&I bank. I contacted Mike Olson, the owner of MMF, to get the big picture.
Mike moved to Madison in the spring of 2001 to work at Springs Window Fashions as a packaging engineer and was looking for a rehearsal studio for his band at the time, Defacto Oppression. That is when he started a monthly studio business, 24/7 Rehearsal Studios LLC, which he currently still owns and operates, with 20 monthly studios between two 3200 sq/ft warehouses.
After running 24/7 Rehearsal Studios LLC for four years he was getting a lot of calls for resources that were just not available for local musicians, like hourly rehearsal studios, studios for teaching, and recording. This is where he started getting the ideas that formed Madison Music Foundry. He listened to what the local market needed and created a facility to accommodate those needs.
Mike always wanted the Foundry to be a place for lessons and music education but in the first two years he focused on the hourly rehearsal side of the business as that was something that was new to the Madison market so it took a lot of promotion to get people aware of how it worked. On top of that he could not afford to hire anyone, so it was a one-man show for the first couple years. He just could not get everything started all at once while making sure that quality standards were at a level he wanted. Once he had a handle on the hourly rehearsal studio side of the business he started chipping away at the lesson business and also created the Rock Workshop program.
Currently there are 30 instructors at the Foundry. They are independent contractors: The students pay the instructors directly and then the instructors pay a percentage of the lesson fees they collect each week to the Foundry. In return the Foundry markets and promotes the instructors, schedules new students, organizes student jams, recitals, classes and workshops that compliment the private lessons. Ken Fitzsimmons, (Education Director) along with Brett Randall (Operations Manager) work directly with the instructors to create the best facility in the area for music education by creating classes that customers and instructors want to see provided at the Foundry, sharing best practices between instructors, and helping in any way they can to make them more successful.
When Mike started his business ventures in 2001 the financial climate was completely different than it is now as banks were a lot more willing to lend money. He had a solid business plan and experience in the field but his major downfall was that he did not have any collateral to back a loan. That's where the Wisconsin Housing and Economic Development Authority stepped into the picture by backing the loan, thus giving the project the go ahead. WHEDA was,
…created in 1972 by the Wisconsin Legislature as an independent authority, not a state agency. As a lender, WHEDA has over $3 billion in assets.
WHEDA works closely with lenders, developers, local government, nonprofits, community groups and others to implement its low-cost financing programs. We provide low-cost, fixed interest rate mortgages to low- and moderate-income individuals and families to purchase their first home. We also work with developers to finance affordable rental housing, and support economic development and agriculture through our small business guarantee programs.
As I mentioned earlier, business is booming at the Foundry and has been getting better every month. After a very difficult start with the recession taking place shortly after opening and not turning a profit until a year ago, Mike could not be more relieved.
According to Mike,
I would say that this is a prime example what a little perseverance, hard work and luck will get you. I also owe this success to a long list of believers in the Foundry for all their support over the years. The busy lobby is part of having over 500 students every week and between 15-30 bands using the hourly rehearsal studios every week.
I keep a pretty good read on the pulse of the Madison music community so the closing of Good n’ Loud and Ward Brodt’s lesson dept. wasn’t a real big surprise. While the Foundry definitely benefited from that extra business we were still sad to see local music businesses struggle. Before those closures we were picking up our own momentum and I’m sure if the economy was better there would be more than enough room in this market for all of us to prosper.
Last spring Mike went in for his scheduled meeting to present his financial reports to M&I bank, which he does every six months per a requirement of the loan terms with WHEDA backing. The day ended up being a real rollercoaster for Mike. First his banker was in the process of moving her office to the downtown branch but that very afternoon the downtown branch was shut down due to the protests, specifically firefighters outside who were pulling their money out of M&I on the Capital Square, so the meeting was held at the East Towne branch.
Mike was feeling excited as he was presenting financial reports that showed MMF’s first annual profit after struggling through the first three years of being in the red. On top of that he was also proud to show that the first quarter of 2011 showed a 200 percent growth in profitability over the first quarter of 2010.
As soon as Mike finished presenting the 2010 year end financials his banker informed him that M&I would be calling his loan in August, when his WHEDA backing expired. There were two years left on the loan after August. Mike says:
I asked why they would do this after just informing them of the successes that we have accomplished and the only answer I got was due to the fact that I wasn’t turning a profit in the years prior. [...] My response to her was regardless of my profitability in the Foundry’s beginning years I was never late with a loan payment and was current with all of my bills so what difference would there be now that I was actually profitable. The next response from her was that “we don’t try to put people out of business.”
At this point I’m absolutely destroyed and asked why they would do this to me after putting my entire life into this business and on top of the fact if they put me out of business that my home mortgage, which is also through M&I, would go into default and then I would be bankrupt and they would then have to foreclose on my house. Instead of just continuing my business loan and having me pay it off that the immediate result would be losing everything along with the bank not getting the remaining money left on my loans. I felt like I was attacked. She did mentioned that there was a possibility that they wouldn’t call the loan early but I would have to get a second guarantee on the loan from WHEDA along with an additional guarantor on the loan (which I never even needed when I first got the loan and at this point I had paid close to half of it off) and even then there are no guarantees that they would renew the loan. It was crystal clear that they didn’t want my business and where just dumping my small business loan in order to clean up the books for their sale to Harris Bank, in my opinion.
When Mike posted the Facebook status that inspired this diary he include a link to an article from the July 7th, 2011 Wisconsin State Journal on CEO pay. He explains that he attached that particular story to the status update,
...as an example of the mentality of M&I’s business practices. While someone like myself worked 90+ hour work weeks to make my small business successful and always paying all my bills on time to ensure that I met my obligations to the bank. I was rewarded the chance to be put out of business by M&I after finally becoming profitable. I was punished for working hard and creating a profitable business while M&I CEOs get rewarded by taking an already successful bank into financial hardship which tax payers had the privilege to bail out.
Maybe I should write a business plan where the plan is to fail so I can get paid millions of dollars in bonuses, sounds pretty silly but then again let's look at the example given by this article. Also, as we go into this election year and we listen to all the talk about our economy, I think that it is very important to never let the big banks off the hook in regards to what they did to contribute to the recession.
Mike eventually ended up at McFarland State Bank, a local bank based in a suburb of Madison, because:
I already had a business relationship with them. After my last meeting with M&I Bank I immediately set up a meeting with the Small Business Administration to talk about my eligibility for SBA loan backing. I had also talked WHEDA about my dealings with M&I Bank and the possibilities of getting their support to renew the loan.
WHEDA had never extended a loan guarantee before as typically after their term of backing the loan the business has either gone under or become successful which at that point the bank is their partner and supports them. Regardless of never doing this in the past WHEDA believed in the Foundry and agreed to help me work this out. Over the next 6 months I put the hammer down and worked on getting both the loan renewed with M&I and WHEDA as a backup plan if the SBA backing wouldn’t go through for the McFarland State Bank loan.
I knew that getting the approval from SBA would take more time than I had left before my loan was due in Aug. which is why I had to work on both plans to ensure a safety net and also knowing that the continued WHEDA backing would improve my chances with SBA. I was able to obtain WHEDA backing weeks before my loan was due and was able to renew the current loan with M&I. At this point Harris Bank had already bought out M&I so I guess my loan didn’t ruin the deal.
Even though M&I renewed Mike’s loan he still wanted nothing more than to separate his business from them so he continued working with Wisconsin Business Development to package his loan offer for SBA. This was an enormous undertaking but on Oct. 27th, 2011 SBA approved his loan with the McFarland State Bank, which wrapped up both his M&I and McFarland business loans into one loan at a lower interest rate and extended the length of the loan, which drastically improved his cash flow.
Overall that was one of the most stressful summers in my life, every day I would go to work and see how much people loved the Foundry and our daily successes yet always had this weight on my back that if I don’t get this loan renewed, it could all end which was so surreal as we continued to grow the business and become more profitable. In the end, with a lot of hard work and support from those that believed in what I was doing, we are in a better place.
This being Wisconsin I asked Mike what impact Gov. Scott Walker's policies have had on his business:
Scott Walker’s policies have certainly hurt business. His policies do absolutely nothing to help small business and their customers. Well, I guess the only thing that he did to help my business was to cut school budgets which in result cut the budgets for music programs in which students have to find alternatives to public school to learn music—oh wait, but then again those very students' household incomes may have decreased so they can’t afford to buy an instrument or pay for private lessons anyway. Wait, wait, wait ... isn’t there funding for arts in our community to improve the standard of living in our state, oh shoot that was cut too, wasn’t it.