the concept of mini-Balrogs was created by Miss Cam, who wrote the Official Fanfiction University of Middle-earth. The idea actually is that mini-Balrogs are created by misspelling a Lord of the Rings canon character's name, or the name of a known location.

So the poor little minis are actually created by typos.

It's the same for other fandoms the PPC knows, these days. We have a list of types of minis here, all mini-versions of monsters native to the continuum being mangled. Hope this helps.