I have to go a long way but I have my share of success and failures and learnings and one thing which I leanred the hard way is, you need to kill it before it gets too late.
It happens with way too many of us when we are putting all we have into something which we believe in that we blindly feels it is the next big thing even though it is not, we don’t care about what people says and pumps more money and time and try to create non existing market and then we realize that OK, it is indeed too late and your idea, product or service is not going anywhere.
I am obviously way to new in this field to suggest people when to quit and when not to, though if asked, I will always suggest people to hang in there as much as you can since the more you hang in there, the more chances you have to succeed, ofcourse this do not apply if your expenses are increasing way too rapidly than your growth, something which happens with lot of non web startups.
Personally I feels, you should complete the cycle and only then call it quit, so launch the product, see how market reacts, if you feels it hasn’t done well, make some changes, then see how market reacts, see everything from finances point of view (you shouldn’t even start if things don’t look good from finance point of view) and only then kill the product.
By the way, you may want to read this post how to evaluate new product ideas too.