In a crowded market pushing bargain-bin prices, New York’s translation titan is counting on a competitive edge to take it to the top spot.

By Marie Griffin

SmartCEO- February 17, 2014

In the $35 billion translation services industry, it’s not unusual for a pair of entrepreneurs to enter the business, as Liz Elting and Phil Shawe did when they founded TransPerfect out of a New York University dorm room in 1992. It’s the next 21 years of their story that are truly remarkable.

Post-MBA, Elting and Shawe built the third-largest translation services company in the world, the second largest in the U.S. and the largest privately held company in the industry. It’s a force with offices in 80 cities, services in more than 170 languages and an all-star client list that includes USPS, IKEA, Johnson & Johnson, and Hilton Worldwide. More than 2,600 employees strong, TransPerfect projected $400 million in revenue for 2013 — and has no intention of going public anytime soon.

Instead, TransPerfect is accelerating along the growth path less traveled. As translation services become increasingly commoditized, the company wards off smaller, cheaper competition with top-notch customer service, deep industry expertise and just the right combination of machine speed and human touch. Today, Elting and Shawe are dedicated to a two-prong goal: growing TransPerfect to the No. 1 player in global translation services and hitting $1 billion in revenue.

Dorm days

Elting and Shawe met in 1991 through the MBA program at New York University’s Stern School of Business. Prior to attending business school, Elting worked for a leading translation services company, but, she says, “I didn’t originally think, ‘I’m going to go to business school and then start a company.’”

She did, however, join an entrepreneurs’ group at NYU, where she was challenged to think of ideas for a new business. Looking back at her experience with the translations company, “I felt those customers weren’t getting the combination of service and quality they would have gotten from a top-tier investment bank or law firm,” she remembers.

By the time Elting graduated in 1992, she had developed her idea for a document translation company with a determination to “wow” its customers. And as she and Shawe saw a growing number of businesses expanding across country and language lines, the timing seemed right. “There was a recession,” Elting explains. “Since we were still used to living like students, I thought it was a good time to take a risk.”

The duo started document translation company TransPerfect Translations in December 1992 in the NYU dorm room they were then sharing. (Although they were romantically involved in the early years, the relationship between Elting and Shawe has been strictly business for more than a decade.)

Starting a business wasn’t originally on Shawe’s radar, either. “I went to business school to become an investment banker,” he says. But by the time Shawe graduated with his MBA in 1993, TransPerfect “already had too much business for me to do anything else.”

The following year, the business moved out of the dorm and into a shared office before taking up permanent headquarters in 1995 at 3 Park Ave., where it still resides today.

Billion or bust

Getting to $1 billion won’t be an easy feat to be sure, but Elting and Shawe are confident it’s in the cards.

“Repeat business is a huge part of how we’ve grown our company,” Elting explains. “We’ve kept the same clients for years, and we’ve added to the services we’ve offered them. Our way of growing has always been a combination of growing business in our current offices, adding new offices, adding related lines of business and making acquisitions.”

TransPerfect has made 20 acquisitions in its history (most of which continue to operate under their original brands as divisions of TransPerfect), but they aren’t the company’s primary source of growth.

“A lot of people look at our [projected] $400 million in revenue and, knowing that we have made some acquisitions, think a lot of that revenue growth is not organic when, in fact, the opposite is true,” Shawe says, pointing out that TransPerfect has virtually no debt today. “We have never made an acquisition we could not fund out of debt or cash flows of the business.”

Thomas Pennell, director of corporate strategy at TransPerfect, has been helping TransPerfect find, negotiate and integrate acquisitions for the past several years, and he asserts that TransPerfect is the No. 1 company organically grown in its field.

“Acquisitions have been a laughably small part of their growth, probably only 10 percent,” Pennell says. “For TransPerfect, acquisitions have been a way to add talent, clients and software or engineering expertise.”

“These companies usually scale up after they’re acquired because Phil and Liz reinvest heavily in the business. They have a strong infrastructure, and they’ve figured out how to build up a sales organization. They also have better protocols for cash management than almost any company they buy,” he adds.

Donald DePalma, founder and chief strategist at Common Sense Advisory, an independent research and consulting company specializing in language services providers (LSPs), agrees that TransPerfect’s acquisitions are minimal in comparison to its main competitors. One of TransPerfect’s top competitors, Lionbridge, for example, “has grown very much by acquisition,” he notes.

Aiming for $1 billion isn’t merely for bragging rights, DePalma points out. “By virtue of being bigger, TransPerfect has free cash flow that allows them to hire the right people, acquire services, develop technologies and bring on more salespeople, which, in turn, fuels even higher sales,” he says.

Do Elting and Shawe believe they can reach the $1 billion milestone while remaining private?

“Liz and I went to business school together, and going public was presented as a natural progression, a sort of graduation for the business,” Shawe says. “To us, both going public and bringing in investors are just ways to raise capital, so we would have to have a compelling use for those funds. So, for example, if one of our larger competitors was going to be sold and it was under attractive terms, we would have to analyze it.”

But Shawe and Elting are quick to point out downsides to going public. “Having no outside equity holders allows us to operate quickly and efficiently, and we’re not pressured to return results by the quarter,” Shawe says. “Public companies also have a set of fiduciary duties that we don’t, and those can take up a lot of time and be distracting.”

Elting, who has been blogging for theWall Street Journal website as a part of a series for entrepreneurs, addressed the issue in the post “Any External Investor Is Too Many” last October: “By maintaining sole control of your company outside of investor influence, you ensure that the original vision you had is the one that continues to guide the company direction,” she wrote. “When you get to where you’re going, you’ll want to be able to look around and recognize what you see. And the only way you can truly guarantee that is by retaining total control of everything that happens along the way.”

Cost in translation

According to Common Sense Advisory, there are roughly 28,000 LSPs worldwide, and 65 percent of them have between two and five employees. DePalma explains that the huge supply of bargain-bin translation companies has turned the landscape into one of intense price competition.

Commoditization of the industry has been heightened by ever-improving machine translation technologies, which not only compete directly against established LSPs but also give potential customers the idea that translation services should cost little or, in the case of automated online translation services such as Google Translate, nothing at all. Branching out beyond translation services is “absolutely essential to survival in this industry,” DePalma says.

Common Sense Advisory’s most recent annual report of the language services market shows that pricing for translation has been dropping since 2004, with the average per-word rate decreasing 42 percent between 2008 and 2012. “‘Good enough’ is the new normal,” according to the report. “Many buyers have become more tolerant of the good, mediocre or even flawed translations that they can have on their terms — right now and cheap.”

TransPerfect’s differentiators — in the broadest terms — are technology, which gives TransPerfect the capabilities to handle projects far beyond the scope of the smaller translation firms, and specialized expertise in several business verticals, which gives TransPerfect an edge over the other large LSPs.

“We develop value-added services for our clients to fight the natural tendency for businesses to become commoditized,” Shawe says. “We’re constantly bringing new solutions, constantly trying to up our game with better service, constantly trying to enhance our technologies.”

Integrated within everything TransPerfect does, say its founders, is a focus on client service fueled by a culture that encourages employees to always go the extra mile. “One of our core values is a sense of urgency,” Elting notes. “We’re probably the most responsive company in our industry, and that’s been critical to our success.”

DePalma says he knows translation buyers who can back up that claim. “I’ve heard TransPerfect tries to give clients whatever they want, no matter how challenging,” he says. “I’m not referring to giving clients the lowest price necessarily, but they might do a project in three days instead of four days or add additional services to the mix that the client finds valuable.”

“We’ve never not tried to help a customer,” Shawe says. “When we’re asked to do the impossible, we can often do it, but we have to manage expectations and make the customers aware of what the risks are.”

Practices make perfect

One of TransPerfect’s primary differentiators in the crowded translation field is its organization around “practice groups,” where expertise across a range of key functions — production, sales, subject-matter-expert translators and industry-specific services such as court reporting — is aggregated on behalf of a particular business sector. TransPerfect’s areas of expertise range from life sciences and pharmaceuticals to advertising and marketing.

It’s also one of the largest translation services firms serving the legal industry, Shawe says. Its specialized business unit, TransPerfect Legal Solutions (TLS), offers document translation by experienced legal translators, machine translation services for very high-volume or fast-turnaround jobs, a dedicated web portal for patent-related projects, and specialized legal interpretation (for translating the spoken rather than written word) in face-to-face, telephone or video situations.

But TLS can also provide a wide array of specialized services to its legal clients that are not language-related, from electronic discovery (e-discovery) to legal staffing services. Elting and Shawe invested in legal services both internally and through acquisitions. Last year, TLS announced mergers with Counselor Resource Group a provider of e-discovery consulting and service-based solutions; Digital Reef, a leading e-discovery software provider; and Yamane Documentation in Tokyo.

TransPerfect launched its life sciences practice in 2005 when it acquired Crimson Language Services, which specialized in medical technology and other highly-regulated industries. With that acquisition, TransPerfect gained a methodology for controlling quality in high-risk translation applications. Today, TransPerfect offers a range of translation and interpretation services for the life sciences industry, as well as Trial Interactive, a secure web platform that streamlines the start-up process for clinical trials and allows multicenter clinical trials to securely manage and share documentation.

In addition to organizing TransPerfect’s staff within units that specialize in particular industries, the company has put a system of measurements in place to make sure its translators, who are primarily independent freelancers, have the right skills to serve these specialized markets. TransPerfect Linguist Certification, in place since 2005, requires linguists to demonstrate their ability to provide professional-level translation quality in both language and subject matter through proof of employment, references and tests that measure specific capabilities.

Automated future?

Even though TransPerfect can offer machine translation for certain types of jobs and clients, the vast majority of its work involves professional linguists. Advancement of automated translation technology and crowdsourced translations — using volunteer translators via the internet — brings into question how long the human-intensive TransPerfect business model will remain valuable.

“We do a lot of branded content, high-risk content and a lot of legal content,” Shawe says. “These don’t lend themselves very well to machine translation, so I feel pretty good about where we’re positioned.”

Predictions about technology’s impact are often wrong, he adds, noting that fax machines didn’t put overnight delivery services out of business and internet shopping has not replaced brick-and-mortar stores, in spite of early prognosticators.

“Rather than machine translation putting human translators out of business, I can see a future where the demand for translation escalates as people see more content in their local languages and start to expect it,” Shawe says. “Along with that, there will be more demand for high-quality content in many more languages, and we are perfectly positioned for that, based on the industries we serve and the types of solutions we provide.”

DePalma agrees: “According to research we’ve seen, 2.5 quintillion bytes of digital data are being created every day. Let’s say only 1 millionth of that could, and arguably should, be translated into 50 or 100 languages. Within that, there’s a cluster of information that has to be translated absolutely perfectly; that’s where the humans are going to be required for the foreseeable future. That’s the sweet spot of the market for a company like TransPerfect.”