It's definitely how most people do things today. The way I did it, like everything else, has its pros and cons.

Some of the pros:

1. My buddies in the dealership domain are my customers. They call me up and ask me for a feature directly.

From my experience, this yields better quality features than talking to the domain expert that's probably trying to translate his conversation with the customer.

2. There's the advantage of you being in a domain where most people are your friends then your potential users. A lot of psychological walls are broken this way (what is he trying to sell me?). We trust each other by our reputation in the industry and this tends to extend to they quality of software they expect from us. Them knowing that we're developing it ourselves helps a lot.

Imagine cold walking into a business like a salesman would and offering your product. Now imagine walking into the business where you know the owner very well and you intend of having coffee with him first, then telling him about how you might be able to help him out. Big difference.

There are more, but these come to mind now.

So it's not only quality of software, but also how much easier it is to get your first paid user base that will enable you to create a good product that would hopefully scale beyond your paid-users-as-friends.