It's a vicious cycle: they don't want to represent you unless you already have an audience, but you can't garner an audience when you work hasn't even been published yet.
The idea of self-publishing has always been in the back of my mind. However, being extremely behind on the times, I have always lumped the concept in with vanity publishing. Even when I looked into POD self-publishing (Print-on-Demand, or, if you're a child of the 90s, the best Christian alt-rock band ever), I felt like it was giving up somehow, throwing all my hard work away in the name of selling a few copies to my friends and family.
However, one thing I forgot was, with the advent of Web 2.0, there are more opportunities to those in the arts than ever before. Singers who were passed up by every major record label in town can cultivate their own fanbase with a little help from Facebook, YouTube, iTunes, and, for a period of time, Myspace Music. Photographers and painters can sell prints thanks to numerous online art communities. The concept of self promotion is no longer limited to the guy on the sidewalk, fruitlessly passing out flyers for his band. Although the medium is still on a smaller scale, the power is in the artists' hands. And that power can be just what you need to get your foot in the door.
Take two of my recently-enjoyed books: Still Alice by Lisa Genova, and The Help by Kathryn Stockett. Both authors had similar journeys to publishing success: both queried countless agencies, both were unanimously rejected, and both decided to simply self-publish. They cultivated a fan base on their own and, when word of their success made its way to the "legitimate" publishing world, agencies that flat-out rejected them ended up contacting them about representation.
It really is easy to look at the success of Twilight series and get frustrated. I won't even get into the books' extreme lack of merit (any type of merit); the simple fact that Stephanie Meyer had an agent by Query #15 and a book deal before the book could've been properly edited (at least, that's my guess) is frustrating to writers -- if only because we want that success. We don't want to be like Stephen King, sending out 200+ queries until getting even a short story published. We want to be the special ones who have agencies lined up by their door.
But the publishing industry doesn't work like that. Stephanie Meyer is literally one in a billion. Maybe six other authors in all of the current publishing market have had that luck. And even in better economic times, times when people read more frequently, people did not achieve representation/a book deal that quickly. And now, more than ever, you have to already have a fanbase before anyone will even look at you.
I have already starting my (hopefully) last round of editing, polishing Manuscript #1 until it is absolute perfection. After that, I'll be collaborating with my sister-in-law to make an eye-catching cover (a bit of advice I got from a fellow writer: when designing your own book cover, make sure it looks eye-catching in thumbnail size. When people are scanning the digital shelves of Amazon or B&N.com, that's all they're going to see!), with the goal being self-publishing it as an e-book/POD by the fall. It's already copyrighted (an act I urge all writers to do. It's super quick, it only costs $30, and it covers your ass) and I already own software that turns Word documents into e-book files. After that, it's all about finding the best platform, putting it out there, and promoting shamelessly (which, given how I can be with this blog, is something I already have experience with).
If you are curious about the wonderful world of e-publishing, I suggest reading this and this great article. The only caveat I give is that, since the world of e-publishing is constantly changing, both articles are already outdated!