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You're right, it's not sustainable for a growing, decent-sized business.

But it doesn't have to be, nor should it. Like I said, it's simply a way to cheaply test the product/market fit.

Once you've found fit you can more safely move to the right of the spectrum and invest in a quality product.

That's exactly what I'm doing now.

I think what is important is that you understand who you think you are hiring, and can set expectations of behavior for both the contractor and the customers. The little chart, hopefully, precipitates that decision, or at least brings forth the idea that there are tradeoffs.

Deliberately hiring cheap workers. If the idea is to keep costs as low as possible and still turn out a functioning product it makes complete sense. If the idea is to turn out the best product possible, you obviously wouldn't want to do that.