This is only true for companies that have a large talent pool e.g. FAANG companies. For some small 30 person business in the back of nowhere that wants you in the office 5 days a week they cannot be anywhere near as picky.
I tend to think it's even more true for smaller companies that do not have the margin for too many mistakes. FAANG do not have an all-A cast. They have enough buffer to weather the odd mishire; and they also have enough projects going on that they can find better projects for people based on their strengths. At a small company on the other hand, the wrong hire can be existentially problematic for the business.
Mistakes can be fixed if they are small scale i.e. one bad hire stand out at a small company and can be fired much more easily. What you're missing is that for these small companies they are excluding the best candidates with this process. In terms of bad hires at large companies they are harder to notice and large companies have more process that tends to make firing people harder.
This is why these big companies do it, because it is actually quite hard to be fired from someplace like google whereas at these small companies you'll be working directly with the owners.
Also people will do all these take home tests and 5 rounds of algo interviews and CCAT tests ... etc for large well known companies as it is prestigious to work for them. They literally won't do them for small companies. For small companies unknown companies all you'll get is desperate people you are actually filtering out all the decent candidates. I went through this process last year it's very hard to hire as a small unknown company.
