When it comes to most “normie” use cases in Linux (and I am including the self hosting community here as well), people prefer working on well established and supported distributions such as Debian, Ubuntu, CentOS, Fedora, etc.
Generally, people would discourage the use of bleeding edge distributions like Arch, Gentoo, etc. as it might break something if the user doesn’t know what they’re doing. Yet, I have seen instances where this has been used by hobbyists and companies. (ChromeOS is a Gentoo corruption, and SteamOS is an arch derivative).
What about Linux from Scratch (LFS)? Under what circumstances would one want to build Linux from the ground up for production or commercial purposes?
Linux From Scratch (aka LFS) is a set of documentation and resources that describe one way in which to build everything on a Linux system yourself. It is not the only way though. Embedded systems is one place you might build every image from scratch but if you go down that route you are typically using something like yocto or buildroot which are designed to compile simple embedded distros for specific projects using an existing system for the build process. These are useful as embedded systems are often resource constraint and you don’t want to include things that are not required and often on different architectures from the host systems (such as ARM CPUs).
These days there is very little commercial purpose to creating your own distro from scratch that are not for embedded systems. It is a lot of work and generally not worth the effort unless building a distro is the point of your business - but even then you better have a good reason that using an existing one as a base is not a good idea. Packaging everything for a general purpose distro is a lot of work with very little benefit for a company to do. It is vastly easier to use what others have done as the base until you can justify the expense of managing everything your self (if it ever makes sense to do that).
So the only real place that you would go down building a distro from scratch is if you have a new or different idea about package management. Arch Linux did this with pacman, Gentoo with emerge, Alpine with apk, and Nixos with nix. These types of things typically start out as hobbyist projects and grow from there rather than with a commercial intent in mind.
The only other thing that makes sense is from a very high threat model for security reasons - thinking nation state level actors not your every day home user. You may want to build everything from scratch if you want to absolutely trust everything on your system and have the time and resources to do this.