Because the expected value of using AWS is greater than the expected value of self-hosting. It's not that nobody's ever heard of running on their own metal. Look back at what everyone did before AWS, and how fast they ran screaming away from it as soon as they could. Once you didn't have to do that any more, it's just so much better that the rare outages are worth it for the vast majority of startups.

Medical devices, banks, the military, etc. should generally run on their own hardware. The next photo-sharing app? It's just not worth it until they hit tremendous scale.