The Uncle Gordon Rule: A Mental Model for Thinking Through Growth and Operational Spend

It’s not always clear if spending money on materials, services, or a new hire is going to produce a return for your company. When situations where unclear investment outcomes come about, the Uncle Gordon Rule applies.

My grandfather, even through his late 90s, was a prolific adopter and consumer of new technology. He was a deeply curious man, a well-respected doctor in town, and famous for his conservative application of belt and suspenders, worn at the same time.

With the advent of the personal computer becoming mainstream in the 1970s, my grandfather, like many unabashed technologists, was an early adopter. In fact, every time a new machine was released, he was an early purchaser.

Family legend has it that every time my grandfather brought home a new computer—which was often—my Uncle Gordon would ask my grandfather the same question:

“Can the computer do my homework?”

The Uncle Gordon Rule is the following question:
“Can I do no more incremental work and get an output?”

Before I can explain this mental model, I need to make the analogy a bit more weird. It’s been famously reported that small hidden tribes in the Amazon rainforest work only a few hours in the morning and rest in the afternoon. The Cuiva people of Colombia and Venezuela work only 15–20 hours per week. Efficiency in meeting basic needs: These tribes typically devote about 20–40 hours per week to subsistence activities, which is sufficient to meet their basic needs. In part, this is because hunter-gatherer work requires high levels of skill and knowledge but is not labor-intensive, allowing for more efficient use of time. But there has been no incremental value in their labor for hundreds of generations.

Before I go into the latter part of this discussion, let me state that my uncle is no Luddite. His investment track record is enviable, and his career as an engineer is impressive, to say the least. My Uncle Gordon was not lazy. In point of fact, my Uncle Gordon is often referred to as the smartest of my aunts and uncles. He was smarter than his teachers and tried to spend his time doing things that produced a higher return for him personally. Homework simply had a lower expected yield for him intellectually. Hence, could the computer do it for him?

Applying the Uncle Gordon Rule in Management Decisions

Managers should apply the Uncle Gordon Rule when evaluating operational and capital decisions. The rule suggests first considering whether you can achieve an output with no additional incremental work, using the two primary inputs: labor and capital.

To apply this rule, managers can follow these steps:

• Evaluate the Current Efficiency: Look at the current operational processes and identify areas where labor or capital inputs can be reduced without compromising output. This means finding ways to streamline processes, automate tasks, or reallocate resources more effectively.

• Test Reduction of Inputs: Implement changes to reduce the number of labor hours or capital investments. This might involve adopting new technologies, redefining job roles, or cutting unnecessary expenses. The goal is to see if the system can maintain or even improve its yield with fewer inputs.

• Monitor and Adjust: Continuously monitor the results of these changes. If the system shows increased efficiency, consider gradually increasing inputs again to maximize yield.

By working the problem of Return on Invested Capital (ROIC) backward, managers can determine the true efficiency of their operations. If reducing inputs does not lead to increased efficiency, and both forward and backward analyses fail to show improvements, then it is a strong indication that investing in additional capital (either human or financial) would not be beneficial.

This approach helps managers make informed decisions about where to allocate resources, ensuring that investments are only made when there is clear evidence of potential for increased yield and efficiency.

The Uncle Gordon Rule in the context of rapid Technological Change

It’s true that changes in technology and processes create more wealth. Nobel laureate Robert Solow is widely recognized for highlighting the crucial role of technological progress as a major driving force behind economic growth and wealth creation. Solow’s work underscores that the innovation of new tools is the primary factor behind wealth creation.

Elon Musk's “The Algorithm” mental model for reducing inputs emphasizes the importance of minimizing the inputs required to achieve desired outputs, aligning well with the Uncle Gordon Rule and maximizing ROIC. Musk's approach involves scrutinizing each component of a process to eliminate redundancies and simplify operations, fostering innovation within constraints. By combining Musk's methodology with the Uncle Gordon Rule, managers can evaluate efficiencies, reduce inputs, and adjust processes to maintain a balance between input and output. This combined strategy ensures resource allocation is effective, promoting efficiency, innovation, and sustainable growth in a rapidly changing technological landscape.

Today, this concept is more relevant than ever. It marks the first day the public zeitgeist has fully realized the implications of AI in economic systems, as users adapt to tools newly released by Chinese competitors. Marc Andreessen has even called this “AI’s Sputnik moment,” in reference to Chinese ChatGPT rival DeepSeek. The market is reacting viscerally to the unknown (which in context seems rather rational given the quantum of the unknown).  

What managers must do in this arena is apply the Uncle Gordon Rule: “Can the machine do my homework for me?” The answer, based on personal testing of many of these tools, is a resounding yes. A fundamental new tool has been unleashed, and managers need to aggressively ask themselves the Uncle Gordon Rule to remain competitive in this rapidly changing landscape.