How a medium-sized LSP survived an economic crisis

By ClientSide News Magazine

www.clientsidenews.com

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CSN staff interview with Medium sized LSP executive

2009 was tough. In our company we all had to take pay cuts back in April. Everyone took pay cuts and we were happy to do that and keep our jobs rather than end up in the unemployment line.

So let’s talk about last year and some of the challenges that we saw and how we changed our business model to adapt and survive it. Not just survive but change the way that we are doing business permanently because of it.

The economic impact really started to hit us right around January of 2009. That’s when we began to see the writing on the wall. December wasn’t the best month but it wasn’t terrible. We still had a lot in the pipe and things still felt like they were going go as expected. Then January came, it wasn’t a stellar month but not terrible. When February hit it was like somebody turned off a light switch. Something just went wham! It was literally was like somebody shut down the revenue tap.

You know in our industry we are in a three month cycle. If you have a bad month, a really slow business month, you don’t feel it revenue wise for two or three months. You could still be collecting and booking from business a few months ago. So obviously it was happening back in December and January but in February we really felt it, and by March we were just in a full on panic. Revenue was down a full 50%!

By March we saw the February numbers and knew that April was not going to be good either. We could just tell March revenue wasn’t going to be any better than February’s. At that point we recognized that if we didn’t make some rapid adjustments and if this continues through April, May and June we were going to be in really, really bad shape. So we started plugging up holes in the boat before it sank. It literally felt like that’s what was going to happen. Because in a small business even when you’re doing a couple of $1,000,000 in revenue, you have salaries, overhead, costs and expenses. That seems like a good size business but even at that level, somebody personally has to support it. This isn’t some deep-pocket corporation that can just dip into lines of credit or cash accounts or reserves. It’s a person at the other end, somebody that has to remortgaging their house just to cover losses and keep operations flowing. When you’re expecting to do $150 to $200k per month in revenue and that gets cut in half then you are dipping into your own bank account, your own personal banking account to the tune of $50k to $75k per month. Now put that into perspective. What would that mean for you and I?

On top of that we had the credit crunch. It wasn’t easy to go to your line of credit or to your banker and say “business is going really south right now and we need a floater for a few months until this gets sorted out.” That option just wasn’t available so you really had to bootstrap and figure out the solution.

We were asking ourselves how we were going to turn this around. The one big question was revenue and how are we going to win more business when opportunities were drying up which was a real problem. When we would normally do two or three large projects to the tune of $100k to $200k in each project per year we were not bidding anything. We didn’t have any of those in the pipe. The clients that would normally give those to us were going backwards and renegotiating rates. Some said we needed to reduce our rates by as much as 30%. The clients were telling us they were hurting and needed some relief. Their management was telling them to cut costs and if they don’t find a way to cut translation costs by 30% they were not going to have any translation budget to work with us. Our clients were coming to us and saying if we wanted to keep their business we would have to be more competitive on price.

So we had to scramble, we had to look at our cost infrastructure and trim the fat, trim all the fat completely. There was no room left for anything. We cut salaries across the board, we cut operational expenses across the board, and then we started to at our cost of goods sold. We had to start figuring out how to squeeze more profit out of the jobs that we still had. So we went to our translation pool and asked them for a 20% to 30% reduction in their rates. These were our core translators who we worked with on a daily basis and they came through. We reduced those costs considerably.

Then we were trying to figure out why we were not winning some of the projects we were bidding? We were bidding at 20¢ per word for Spanish and 30¢ per word for more obscure languages like, for example, Mongolian. We were even bidding 25-28¢ per word for Croatian, Serbian and some of those languages. And we were still not winning the business. So we started tracking wherever we could find out what the winning bid was. We found out that to be competitive we had to bid at 10¢ per word, dropping some of those Eastern European languages down to 10¢ per word. That’s how competitive the market became.

Once we realized how competitive things had become we decided to completely rethink our entire business model. We started to go out to the translation marketplace and say to our resources “we have to bid this at 10¢ per word which means you have to come in at 5¢ per word. Can you do that? Can you help us win this business?” Then the translators started competing with each other. One would say “I will do that for 5¢ per word, then another would say I will do it for 4¢ per word and others were willing to do it for 3 ½¢ per word.” The translators started to become extremely competitive with each other.

When we realized that the translators were willing to go that low and were willing to compete with each other we put them in a bidding war to get the lowest possible price. It’s an open market, and just like the clients are pushing us to bid at 10¢ per word as a polished final rate, we ourselves had to do the same to the translators. We did not want to do that. By no means did we want to push the translators to rates that low because of its potential, negative impact on quality. But we were able to go to the open market and openly bid some of these projects and get translators to come in with quality work at 3 ½¢ to 4¢ or five cents per word for Eastern European languages, 8¢ per word for Asian languages, rates that we never expected we would see from translators.

So we brought our cost of goods sold down considerably to where we could make a reasonable margin on the work that we did get. Hard adjustments were made across the board and things haven’t completely eased up on that yet. We decided we could not afford to be picky and choosy anymore about what we bid either and hoped to win as much as we could. Then as things eased up and as more work started to come in we decided not to bid these 10¢ for word jobs. We don’t want that low, low margin work. We don’t want to keep putting our translators in that position to have to bid that low.

Now we’re a little bit more selective about what we’re bidding. We finally reached that point towards the end of the year. We felt like we fell off a cliff in February, 2009, had to readjust and rethink everything and then by the time the year ended we found ourselves in a position feeling much better. Revenues are much better, profitability is much better but our business model is still in that fat trimming mode. We haven’t gone back to investing in other things such as growth. We’re still in a ratcheted down budget mode from an operational perspective and our salaries are still in a cut mode.

While we feel that we fell off the cliff and finally climbed most of the way back up, we don’t feel like we’re back on top of the mountain yet. We cannot see over it and just don’t know what is ahead so we’re remaining cautious with our budget. Even though quarter four of 2009 was very good and the revenue generated in that quarter offset the losses from quarters two and three ’09 and even balanced out the year, we are just not certain about the economy yet and there’s still a little bit of uncertainty in the marketplace.

That said, we feel really good going into 2010 and do actually have a very positive feeling about it, but that fear from last year is what’s holding us back. It’s not a bad thing to go into this year cautious. Now we are entering the New Year with a new, low operational overhead business model that allows us to be very responsive. If we do have a poor first quarter it won’t kill us. It won’t put us into panic mode like it did last year. At this point we’re running as lean and mean as we can.

Published - February 2010

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