This completely misses the reason why you need to hire the best initially. It has nothing to do with the hardness of your own company's problems. It has everything to do with the distribution of productivity among any kind of engineer.
Engineers follow a pareto distribution. In a normal sized team, with a typical hiring funnel, you will have a few high performers, who are responsible for most of the team's productivity. If you can only hire one person from that team, then it is more likely than not that you will hire someone with productivity below the team's mean. At an early startup, this could be a death sentence. Especially since we typically reason and plan in terms of means, so it may come as a surprise that your single engineer is less productive than the mean of most teams that you have worked with.
The other reason (also not mentioned) is that you eventually want to scale hiring. That means that you need to have people, that you have hired yourself, hire more people on your behalf. The best people (A players in the metaphor) don't have imposter syndrome, they know how good they are, and how good they aren't. They want to work with other talent, that makes their lives easier, more interesting, and less stressful than covering for/babysitting other people. It's also the only way they can grow from where they are at. So they can be trusted to hire more A players, out of self interest.
The median engineer (let's call them a B player) often knows about where they stand as well, and often they will have started to diversify their skillset into organizational politics. They intuit: hiring people more competent than them gives them less leverage, and they are pretty good at zero-sum status games, that's their edge. They don't want competition, so they hire C players.
So the reason you want to start with the best is because it's the only way to ensure you can move fast when you need to, and the best way to keep the organization effective long enough to exit. All organizations decay into incompetence, but hopefully you can get yours and get out before that happens.
So... every company only hires the best!? I jest, I jest!
In general, I've found that the younger engineers (20s, up to 30s) have a lot of vim & vigor; but, even the very best ones generally do a lot of spinning-in-place, when they think they're making progress. Almost anyone above a certain level -- call it the 30–40% mark (it's low!) -- can be raised up to be a competent engineer. Probably what'd be called an "an A- or B+" player? That's just part of a good training & onboarding regime; although, it can take 1-3 years, depending on the person. Very good "natural" talent can definitely boost top performance to an A+, but it won't substitute for literal time-under-stress of delivering high quality product-ready code to clients.
One reason you see a pareto distribution in "normal sized" teams is not solely because of competency, but because the 80% can rest on the 20% and therefore don't feel too pressed to work that much. Therefore the pareto model breaks down in 1-man teams.
Only hire A players. B players hire C players, and C players sink the ship
Totally fair, thanks for pointing that out.
I would extend that even further, I'm a fan of the idea that you should thoroughly vet the founders for excellence if you want to maximize your chances of ending up at a great startup. Not just your eng manager and peers.
Like with your "A player" engineers example, founders need to be exceptional if they want to attract great talent to work for them. So if you're pretty unimpressed with them as you're getting to know the company, the likelihood that the team they hired makes up for that deficiency is very low, and you'll end up around non-A players.