[aditya]

So how do ramen profitable companies and "Italian restaurants on the web" (ie. Small self-funded companies that fit a hugely profitable niche) fit your world view?

They (37s, fogcreek, etc.) did start as consulting businesses and raised little or no outside capital to build immensely profitable products...

[naval]

They can work but generally they tend to be service companies for a long time before they become product companies. However, they're almost never done by part-timers. Even 37S and FogCreek are full-time labors of love. Also, there are always exceptions - I'm talking about mass statistics / average web startups - stuff similar to most YC companies.