Small and medium (and even large) companies investing in talent instead of commercial solutions is the solution to improving FOSS. I know it has downsides, as you stated, but there are significant upsides. FOSS is cheaper than a custom solution, and the company only has to pay for the modifications it wants to see. The whole community then benefits from their hard work adding features and maintaining the software.

I'm not saying that it's the BEST idea for every company. All I'm saying is not to discount FOSS out of hand for these companies. There are significant advantages for companies that should be weighed against the cons. This kind of advocacy is also important in furthering the FOSS model.