Spot on. They should have found an existing model with good but not out of the ordinary specs (something like a 5" HD display, 2Gb RAM, etc.), appealing design, reasonably cheap (as in Nexus 4 cheap), and promised quick delivery. There's plenty of Chinese OEM or second-tier brands able to produce such phones here and now, and having owned a few most of them are good, sound devices hardware wise.
Then started working like mad on getting out a nice, user friendly, hackable OS to early adopters.
It's all in the OS, especially since nobody knows how the specs of the planned phone will compare to next year's models.
Remember when Walmart started selling Linux PCs 6-7 years ago? They were the cheapest, lowest-end models you could buy. So people had the association between Linux and low-end/underpowered for quite a long time.
On the other hand, remember what phones were like before the iPhone? Creating something that blew away the current market worked well there.
Then started working like mad on getting out a nice, user friendly, hackable OS to early adopters.
It's all in the OS, especially since nobody knows how the specs of the planned phone will compare to next year's models.