Your theories and methods do make some sense, but a business that spends a lot of money on advertising doesn’t need to be inadequate per se.
I’ve been Marketing Lead for 2 startups and have now started 3 companies.
4 of the 5 have grown through advertising.
In all 4 cases, the market wasn’t even aware that a solution like ours existed. (You can’t search for something you don’t know about.)
I doubt you would argue that advertising these products is some kind of systematic failure.
Second; let’s come back to the hair salon example. Let’s just say it’s brand new.
I doubt you’d argue that a brand new salon is making its product suffer by advertising. After all, it is suffering right now because it has zero customers.
And let’s take a third example - where word of mouth is unavailable. There are many products and services where word of mouth is simply not available as a marketing channel. This is common in B2B where the people picking a service just have no one in their networks who would be interested.
I doubt you’d begrudge them the need to advertise?
Yet a huge amount of marketing spend falls into these three buckets.
I should also add that your out of the way hair salon would never have been able to start without the assistance of advertising. You’d have to be insane to start a business in a low traffic area if you’re prohibited from promoting it.