Combat is a fail state is like saying this game that I wrote rules for is 80% dedicated to the implementation of that fail state. What the rules do not cover is typically the remaining 20% which is left entirely up to the discretion of the GM and the players to define whether or not their course of action is going to reach that fail state or not.
I find that to be backasswards as a general principle. There is nothing wrong with avoiding combat by finding a sneaky approach, or a diplomatic approach, or a puzzle solving approach, but these should not be immediately superior to the combat approach. They should simply be equal approaches. A fail state can occur in all of them.
Edit: Shadowdark, to its credit, provides rules for making combat more viable. It is obviously trying to appeal to a broader array of people than those who simply want to apply the 7 Maxims of OSR. Where I quibble with Shadowdark specifically is that its presentation of the rules is brief, often to a fault. While that's part of its allure to some, it's also confusing to those who expect a bit more description.