[dmix]

1) They'd have to quit consulting to be a real startup. It takes a fulltime effort. Otherwise its just a small business.

Most software devs get paid quite a bit to consult, so they'd be taking a huge pay cut.

A lot of people don't like that risk.

2) Most dev shops I know have side projects they release as products

3) Mostly importantly, building products is really hard to do well. To make any significant amount of money from them is even harder, which makes those dev contracts look so much easier and accessible.