By Simon Walker, Partner, Taylor Wessing

The prospects of succeeding in the UK's digital economy have never been better. Consumer interest in products and services online is higher than ever before, and we have already started to see records set and broken again for online shopping.

However, whilst the UK's digital economy is generating more revenue than last year, every start-up in this space knows that it can’t be assumed easy to do so. Indeed the situation is exacerbated by the fact that it is easier to develop a product or service online today — everyone on the internet can develop an app for under £100, for example. It is only when a company begins to look at generating revenue that the reality of the challenges ahead become clear. It is then that the absolute need to have a product or service people want to buy — be it consumers or businesses - becomes paramount, and in many cases, the difference between success and failure.

The same challenges hold true for those businesses that have been operating in the ‘old economy’ and now wish to evolve with the new. They must approach today as if they were starting their business all over again, otherwise there is a danger that they will lose any unique identity and get lost in the plethora of businesses trying to do the same thing as everyone else. There are many examples of ‘old economy’ businesses, big and small, who have flourished in the new economy and equally those who have not.

Beyond the main aim for many businesses — to create a product or service that consumers or clients want to purchase - there are a range of other challenges to overcome, particularly for those who do not have the financial resources of a business that has operated in the ‘old economy’.

For new businesses, they will need to raise funding. Fortunately, the tax breaks available under Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme have encouraged an unprecedented level of seed investment in the digital economy. However, for those companies who are eventually going to need to raise millions rather than hundreds of thousands of pounds, the prospects are not so good. There is currently a significant shortage of venture capital across Europe, and US investors are still, relatively speaking, reluctant to invest outside their domestic market. There are other pockets of capital available, such as family offices, but these are often hard to identify.

Outside of those listed above, there are other potential hurdles for start-up businesses to be aware of. Due to the boom in the UK's digital economy there is also now a growing shortage of affordable premises in the key clusters. Companies must therefore be prepared to locate just outside those clusters.

Finally, at the heart of the digital economy are the people behind each new idea, product or service. Developers are increasingly in short supply and the Government is looking at ways to relax immigration rules and let more talented people in from outside the EU to support this demand — which cannot happen soon enough..

While these challenges must be overcome to enable the UK's digital economy to continue to flourish, the opportunities within these demonstrate the current strength of the economy and the potential available still to build on.

By Simon Walker, Partner and Head of Taylor Wessing