A lack of digital ability has been identified as a key contributor to the failure of many UK online startups, according to a new report. An independent survey of UK entrepreneurs found aside from financing and raising capital, this lack of digital skills, or “digital poverty”, was the principal reasons for business failure among the digital SME community.

The Business Digital Poverty Gap

The Unleashing Entrepreneurs Online Study, which questioned respondents involved in UK digital startups, found that despite the growing number of businesses forming and launching online, many are dooming themselves to failure as they do not have the necessary knowledge and ability internally to successfully manoeuvre around the digital landscape and take full advantage of online tools to improve their business. Asking the UK’s digital business owners about the key barriers and drivers to entrepreneurialism, the report findings underline the importance of digital education, and in particular, the need for entrepreneurs to have basic digital skills in order to survive in a competitive market place.

Among the other major findings were:

  • Negative perceptions around small businesses are considered to be the #1 barrier when trying to access funding
  • Two out of three small businesses are actively targeting new markets, but being held back by technical challenges including website adaptation adapting and setting up multiple payment options
  • 50% of respondents believe digital businesses are more susceptible to failure than physical businesses
  • 90% feel the government should do more to support online entrepreneurs
  • 65% would consider crowd-sourced funding for their business
  • Over a third of businesses see cloud hosting as the number one digital innovation to drive their online business, followed by social integration and mobile

The pace at which this sector is growing shows no signs of abating. In 2012, the UK was billed as the most internet-based major economy¹ in the world, and the following year, it was found that UK online businesses were growing 50 times faster² than the actual economy. With every £1 in £5 now spent online, combined with the improving trends in smartphone and digital device ownership and online access, there has never been a better time for online based business entrepreneurship to flourish. In addition, a recent UK Government report³ states that digital SME’s could unlock £18.8 billion of annual revenue and stimulate the creation of 58,000 new jobs. Therefore, as the UK economy continues to bounce back from the 2008 recession, it is clear that online enterprise will play a big role in helping get the country back on its feet.

“The online explosion may have removed many of the traditional barriers to entry for startups, but it’s clear they still need solid advice and the right capital partners to get their ideas off the ground”, observed Oskar Miel, Managing Partner of Rakuten FinTech Fund.

His comments were echoed by Henry Lane Fox, CEO of Founders Forum Group and Co-founder of Smartup.io – “I’ve seen first-hand how online businesses can take off and be successful and one thing I’ve learned is how important digital skills are. Education is so important and it doesn’t just stop in the class room, entrepreneurs can also learn for the various online networks and communities out there that that are supporting each other and sharing great work. Things change and develop so quickly, it’s important to keep the skill levels up if you want your business to succeed.”

Heikki Haldre, founder of virtual fitting room Fits.me added, “As an online entrepreneur, working with people that had strong digital skills was critical for the success of my startup. Being able to call on digitally skilled people that are familiar with technology and social media developments meant my business was resilient, and could adapt fast to changing trends. Ultimately, this allowed me to survive and grow in a competitive marketplace. It would be wonderful to see more educational emphasis placed on these digital skills to truly unlock their value to the economy.”

Notes for editors
About the Unleashing Entrepreneurs Online Study
Rakuten commissioned research house OnePoll in October 2015 to interview the owners of 300 online businesses asking them about the challenges they had faced when starting up their business and in its first year.

¹BBC News, March 2012
²Information Age, April 2013
³Make or Break: The UK’s Digital Future, HOUSE OF LORDS Select Committee on Digital Skills, Report of Session 2014–15