Do you engage your market before or after you make a prototype?
I say it's better to get people involved as early as possible (before making the prototype), because not only will you make sure there's a real value but also there's less post development going on.
But, how do you go about approaching your market before having a prototype? It's much easier to get people involved when you have something going on (more than just a vision or an idea). For example, a prototype, something tangible, a proof of commitment, etc.
You might be interested by this case study: http://leanstartup.pbworks.com/Case-Study-One.
We made a few pencil drawings of what the app would look like which we then gave to a graphic designer. The graphic designer created a PS file. We had him create what we called our "screenshots" (which suggests that an app actually existed at the time) and had him wrap them in one of these freely available PS Browser Templates (http://piksels.com/photoshop-browser-templates/).
Now armed, with 4 "screenshots" and a story we approached our target market. Some of which were through warm introductions, some, very literally, were through simple cold-calling.
I totally agree with your observation. Reach out to your expected customer as early as you can during the development stage of your business. It will provide you with the input and feedback you need to create a product or service that delivers the benefits your customers are willing to pay for. Although product and service development is important, your initial efforts should be driven by a strong desire to identify and serve customers while creating a sales base to develop your revenue stream as quickly as possible.
Your first customer can lead to more customers which can prove to yourself and the marketplace that you're potentially viable and more importantly, sustainable.