I don't know. I'm one of these people who wants a smaller phone. Not tiny but definitely wanted a smaller one. I know a couple of people who feel the same, bought an iPhone mini, and when I was looking for my last phone came across reviews specifically targeting this issue.
I don't use iPhones so don't really know very much, but my instinct is that it falls into this bundling fallacy about product characteristics (there might be another term for it; I don't know). It goes something like this:
Companies X, Y, and Z all market products with unusual characteristic A. But there's all sorts of other things about it that make it undesirable or less desirable, so the consumer is faced with trade-offs. In the context of choosing between desirable characteristic A, but also undesirable characteristics B and C, they choose another product because the cost of B and C is greater than the benefit of A.
But then the companies all conclude "no one wants A" because they half-assed the product, not realizing that it wasn't A that was the problem, it was the B and C they released it with.
I see this all the time. With clothing for example, they'll make a garment out of really nice material A, but then release it with this weird design that doesn't really appeal to anyone except a stereotype. With tech I've noticed that they don't really make it available at all sometimes. So there might be product X, but you can't really find it anywhere. With a phone, hypothetically, it might be "my phone broke this morning and I need one ASAP and all the brick and mortar shops around me only carry these specific things and not the iPhone mini."
Anyway, I don't know the iPhone mini from anything, but the bundling fallacy is so prevalent in these situations I'm skeptical. I know I faced this a bit when buying my last Android phone: the next smaller down, which I preferred based on size, and which wasn't even "small", wasn't that much smaller but also had other downsides.
Sometimes I almost feel like companies sometimes intentionally sabotage experimental products just not to deal with the headache of supporting more options in their supply chain.
Also, sometimes there are things that don't sell to a huge market, but do sell, and have a very devoted following. Smaller phones might be like that. In my experience sometimes these "devoted markets" sometimes expand into larger ones later (for example, everyone realizes 3 years from now they can't fit their phones in their pockets anymore and that it doesn't matter if they have a nice big phone to move their fingers around on if they have no place to put it).