I think the main problem is that because margins are so low in online retail, you have to run a large and efficient business to make any money - seems like it would be difficult to start out of your garage and offer the same prices that amazon does.
Small and efficient can work very well if you have a niche and know what you're doing. I have several clients that do exactly this and kick butt in the marketplace. And, ironically, they all sell through Amazon with better prices and service. (One of my hottest product/services is Amazon integration for small retailers. They take 15%, but the orders just keep flowing in...)
I second edw, find a niche, don't try and compete with Amazon. Plenty of niche markets with relatively high margins.
Drop-ship availability will determine whether you can start out of your garage or not. (unless you have a reallly big garage and make that your fulfillment center)
