An industry with a 90% 10yr failure rate isn't one where the majority of its members embody wisdom and foresight.
So there's counterexamples to internal tools being good products. But most are bad, just as most external tools are also bad startups.
Internal tools sound like they should be good startup ideas (see the YC call for startups on today’s front page). Arguing they’re not is making a specific point and different to “most startups will fail.”
An idea can he great. The execution exceptional. But if it's too soon (and likely too difficult to communicate) then it can still fail.
Success is rare. So rare mircles happen more often.
I don’t know how well you would have to execute „Facebook for dog owners” to actually beat Facebook.
There is also whole bunch of seemingly not bad ideas like making Jira alternative - I bet one can make money in that niche but you will have to invest so much that most likely you won’t earn as much as you would expect because you won’t get F500 companies to use it as much as they use Jira.
Even if you build team „something will stick eventually” doesn’t sound like a good idea unless you have infinite money.
Which in turn moves us to the money where real fun begins - some ideas just don’t have earning potential and you can easily tell that dropping 500k on something that will generate 100k a year will earn you back the money in 5 years. Going for idea that will generate 50k is going to be bad idea.