Adam Smith wrote that "the greatest improvement in the productive powers of labour.seem to have been the effects of the division of labour."

Through the eighteenth, nineteenth and twentieth centuries, productivity in the economy increased rapidly as companies grew larger and workers' jobs became more specialised, but in recent years the trend has been going the opposite way.

Often encouraged by opportunities afforded by the internet, the number of small business start-ups has been growing rapidly. More than half a million are now set up each year, with over four million in the UK, employing around 58 per cent of the private sector workforce.

When you help start a company there is little or no division of labour; often you have to do almost everything yourself.

Last year I left a large City financial services company to help start a new business providing information to the markets. The idea was great - there was little competition and the timing was perfect. We have been successful, but the last year has been very challenging, in part because I was unprepared for the range of skills that would be demanded of me in setting up something new.

Before the business started, friends told me what was needed to achieve success was determination. "Just put your head down for the first year and it will work out," they said. They were wrong.

I found this out on the first day I came into the office. Next to my desk was a box containing my computer. My previous company had a 40-strong IT team that would sort out any computer problems. In my new company, I had to set it up myself and, if there was a problem, a colleague phoned a friend who was good with computers.

Others starting up a business have had similar steep learning curves. Robert Kelsey, who helped set up the highly successful specialist PR agency Moorgate Group, was surprised at many of the challenges that came his way in the early days of the business.

"It came as a shock to realise that the most important skill you require is people management," he says. "Most entrepreneurs are mavericks. They find working for people difficult but, for the business to grow, they will quickly have to learn how to work with people. If you can't manage people, you'll never be much more than a freelancer."

The Federation of Small Businesses (FSB), an organisation representing many small businesses, also believes that skills are a key factor affecting whether a new company succeeds or not.

Keeping it going is tough

According to the FSB's Matthew Knowles, "Setting up a business is a much more straightforward process for companies in the UK than in most other countries. However, keeping it going is tough. Half a million firms start up each year but 300,000 of them will go bust in the first three years. So, having the right skills, both for the new boss and for any staff they can take on, can make all the difference."

I found the biggest adjustment when going from big to small is learning how to be flexible. Yes, you need to grit your teeth when times are tough but what proves to be more important is to accept, master and prioritise the widely varying challenges that you have to face every day. These include dealing with estate agents, managing the business's finances (most small businesses fail because of cashflow problems) as well as a dizzying array of other tasks, such as developing a recruitment strategy and working out a manageable marketing campaign.

Throughout all of this, you need to find time to do the core function of the job, the revenue-earning bit, and this can easily get lost as you draw up a perfectly colour-coded spreadsheet of this month's expected sales.

If the company is successful, a new set of skills will be required, that of dividing up the work and delegating responsibility. The issue of flexibility returns; you need to be able to realise that the business has changed and that somebody else will have to do the day-to-day work.

Learning how to manage is crucial if you are to make Smith's point about the efficiencies of the division of labour work to your advantage.