Buying upfront hardware is not feasible even if I had the cash(which most don't), I don't know if the company would last that long or would be doing things that require x servers .
What you are saying is similar to saying may be it is cheaper to buy the building /floor instead of renting space for office. - most small biz cannot afford do that, or expect their business to change (fail/take off) in the time frame ROI would come to take that commitment.
This is all assuming that a the startup has skill in setting up and managing physical servers and there is no opportunity costs( delayed features) on doing so, both are not a given.
small companies ( and poor people) typically don't buy low quality stuff or buy into rent seeking business models because they are dumb it is usually because they cannot afford to do long term thinking.
