Why do we have firms at all?

Studying about small enterprises I stumbled upon "the butcher, the brewer and the baker" theory conceptualized by Adam Smith explaining the existence and relevance of enterprises that provide a specific service to the consumers based on their own skills (Free Lunch, David Smith,p.86).
Having said this, I am compelled to state the obvious question raised by David Smith in his book Free Lunch as to why do we have firms at all, given that we consume as individuals, why can't we produce the same way?
And he answers the question for us stating that about 3 million people are self employed in Britain and most of the businesses that grow up to be large enterprises start up as a one man business. As the business grows, there is requirement for more man power and skill and entrepreneurship, but of course there are some that prefer to remain a one-man business. The reason why most people choose to be self employed can be attributed to security of employment. But data states that majority of people work for others and this as stated by Adam Smith is due to factors like specialization, the division of labor, increased efficiency resulting in lower costs. A sole trader could still produce the same thing but will be incompetent in the factory price area. This could possibly be the reason for the existence of firms, they lower the final cost of the product sold. Sole traders though can still charge the high price sticking to the motto : you pay more but you get something better, or at least more individual. This holds true in the case of Art and Sculpture (among others of course). Because of the high level of skill and attention to detail involved and the "individuality" factor coming into play, it is not surprising to note that we haven't seen very many "large firms" dealing with the direct creation of art (eg. Maori Art Sculpture to name the most evident one present in New Zealand) as we see a sole trader or for that matter a small business deal with it.
It therefore would not be wrong to state that though the economies of scale is lower for small enterprises as compared to their larger counterparts, there are still existing areas where the small business dominates and despite the huge earning potential available empirical data suggests that big firms haven't found a firm footing into those sectors.