That approach works for some studios and some game projects but it's no silver bullet. A lot of times gamers don't know what they want until it's handed on them on a silver platter which can make taking the correct kind of feedback really difficult. Sometimes outside influence may also stray the developers from their original vision.

That being said, developing game in complete secrecy for years and expecting it to become a success has pretty much the same chance as winning in a lottery. Getting MVP out there asap to see if the game will receive any sort of traction and feedback is generally the best approach unless it already has an audience (sequel or well known developer). It can be prototype, demo or early access as long as it's something.

[edit] Removed some repetition