How AI Is Changing What Businesses Are Worth

This week's Founder Friday features an M&A broker with a front-row seat to how AI is reshaping what businesses are worth, which companies buyers still want, and how founders need to adapt.

Christine McDannell spent more than 20 years building and selling companies before launching The Magnolia Firm, an M&A brokerage focused on technology-enabled businesses, five years ago.

Over the past year, she has watched the investment landscape change rapidly. Digital agencies that once attracted strong valuations are now competing with AI-generated creative, automated workflows, and software that companies can increasingly build in-house. At the same time, businesses that successfully integrate AI, protect their margins, and develop new revenue streams are becoming more attractive acquisition targets.

After moving to Austin from San Diego in January, she launched the AI Implementation Club to help other founders and operators respond to the same changes she's seeing across the M&A market.

What founders can steal from this:

Watch how AI is changing what buyers value before the shift reaches your business
Pivot recurring services before they become commoditized
Use AI to protect margins, increase efficiency, and make your company more attractive to buyers

Here's what Christine shared about how AI is changing business valuations and what she has learned building a hands-on community in Austin.

What is The Magnolia Firm, and who do you work with?

The Magnolia Firm is an M&A brokerage I started five years ago. We specifically work with tech-based businesses. I've built and sold so many of my own companies over the last 20 years, so it's been nice to do that for others. When somebody is ready to exit, the day they're ready to exit, that's when they come to us. We find the acquirer and handle A to Z, super white glove, the entire transaction until the money is wired into their account.

What's the most common mistake business owners make when they start thinking about selling?

The biggest trend right now: people are using Claude or ChatGPT to value their business, which I'd do the same. But they come to me saying, "$5 million, $6 million, this is what my business is valued at," when they're netting $150,000 and don't own the real estate. There's no way it's worth that. It's worth maybe half a mil.

These LLMs want to make you happy. They'll tell you wild things, and the thesis behind the number is often really wrong. Ask the AI to be honest. Ask it to pull comps. Perplexity is great for research. Nothing wrong with using AI to get a first read, just make sure the number is realistic.

How has AI changed the M&A landscape for tech businesses?

It's changed dramatically in the last year alone. Digital marketing agencies were super hot from 2021 through 2024. I was spending about $8,000 a month in marketing to source them. Now the same agencies I spoke with a year ago who weren't ready to sell are circling back. These are the hardest conversations. Creative digital agencies with six figure contracts at brands like Clinique. Nike is using AI to generate commercials. They're not paying six figures anymore. One founder I know is laying off 12 of 24 team members.

What I'm trying to do is get them to pivot instead of being paralyzed. If you're an SEO agency and that's all you do, put pedal to the metal on AEO and Generative Engine Optimization, which is how people search on ChatGPT and other LLMs. It's low hanging fruit because you can cross sell to all your recurring SEO clients. Come back to me after that and I can sell you. Right now, honestly, I probably can't. My last five leads, great leads, actually came from Claude or ChatGPT recommending me.

How do you have the hard conversation with a founder who is overvaluing their business?

These are often the same companies I spoke with a year ago and warned. I always say, "I don't want to come off biased," because every M&A advisor tells you, "You should sell right now." I say, "You can use whoever you want, but I'm telling you, you need to sell. I'm deep in this world, and it's moving very fast." Back then they didn't move. Now they believe me. People are scared.

There's a friend of mine who runs a LinkedIn automation marketing agency. He asked me, "Should I sell?" I texted him yesterday, "ASAP." Normally I'd say, "Take your time." On Zoom I pulled up his business, which is SaaS at $500 to $1,500 a month, and typed into the AI in front of him, "How much would it cost me to replicate this business in house so I don't have to pay this agency $1,000 a month?" It laid the whole thing out. I said, "This is what business owners are going to do. Are they going to pay you $1,000 a month, or ask an AI to build it out?"

What businesses actually still have runway to appreciate over the next five years?

E-com. We wouldn't take e-com listings before, because of the iOS privacy change in April 2021. So many of them tanked because their only source of leads was ads, and then Apple changed the game. I wouldn't touch it for three years. Now we've sold a few, seven figures. E-com is doing well if it's profitable and automated. Buyers are back.

The rest is tech, so we're getting hit. Which I knew was coming. I saw meeting notes from February 2023 where I told my team, "AI is going to eat our industry. We need to get ahead of this." I'm an optimist, but I'm a realist. I ended up laying off most of the team last summer. We cut 83% of payroll last summer, because the team wasn't using AI. I begged. "I'll give prizes, whatever I have to do." It just wasn't happening.

What is the AI Implementation Club, and how did it start?

As a kid, I loved computers. Obsessed. I convinced my parents to put the home computer in my bedroom, and I never left my room. I coded basic HTML, had a GeoCities website. If I wasn't so outgoing, I probably would have turned into a software engineer. But I hadn't touched code since. Now with tools like Wispr Flow, I can literally talk to my computer and make a website. Two weeks ago I talked and built a productivity app with Fable.

In January or February this year, I was paralyzed. AI was moving so fast, I didn't know where to start. I kept telling myself I'd go to a cafe on the weekend to learn and build, and it wasn't happening. So I thought, "If I start a club and get people together, then I have accountability." That was the seed.

We're now 18 weeks running straight every Sunday. Two hours of quiet, focused, heads down work. No talking. There's a buzzer if you talk. I'm serious about it. Afterward we go into the conference room (shout out to Antler for hosting us) and do a fun show and tell. Everyone's in their own bubble building really cool things, and sometimes even their own team doesn't get excited about it.

The club itself is free and super diverse: guys, girls, all ages, all backgrounds, beginners through data scientists and ex-Google software engineers. Sometimes someone gets up there and it's like a different language, and I have no idea what they're saying. We also run paid masterclasses where I bring in experts.

What has Austin taught you about running an in-person community?

I moved here from San Diego in January, so I'm seven months in. The in person stuff in Austin is amazing. Community, people, so nice. Number one shout out is the Luma founders, because that platform is amazing. We grew organically strictly off Luma: over 400 members before we even added Meetup, Eventbrite, or Meta ads.

Everything here is in person, and everything is free. Very few events charge. That's why I was cautious about the masterclass experiment. I told myself, "Let me try $25 to cover lunch." People in the audience told me, "You should be charging $100." I moved to $95. Now business owners are telling me, "You should charge $300 for another Obsidian one." When your audience is telling you to charge more, that's a real signal. The masterclasses are capped at 20 business owners, and they're going to pay.

What are you building next with the club?

We're doing a weekly one on Zoom now for people outside Austin. That one is more about sharing tips, tricks, and strategies. It's less focused. We could build a focused version on Zoom too. A friend of mine makes a few million dollars a year running focused work sprints on Zoom where everyone is quietly working in 50 minute blocks.

It's been super organic, which is how I've built every business over 20 years. It was never a master plan. Things change too quickly for me to plan out exactly where something is going. I flow with it. We did free ones for a while, then didn't start doing paid masterclasses until about six weeks in. I'll always keep at least one free Sunday event, even if it's just once a month. A lot of people have told me I should charge a monthly membership for the club, so once we go over capacity, I'll probably implement that.

What advice do you have for Austin business owners thinking about an exit?

I have a book on Amazon called Get Acquired. Reach out to me on LinkedIn and I'll send you the free PDF and audio version. I audio recorded it myself, which was work but fun. You can literally take my book and sell your own company. I lay it out step by step.

The biggest thing: don't think, "The business is wrapped around me, I can't sell it." I've had multiple people come to me saying they were going to shut the business down or give it to an employee, and I've gotten them six figures within a month or two. There's so much value you don't see as a business owner, because you're in the weeds doing the day to day. You don't see the value an acquirer might see. Please reach out. I can at least talk you through it. Don't close the business. It breaks my heart when people have to shut businesses down.

How can the Austin community help?

Christine wants to connect with Austin founders and business owners who are thinking about selling their companies, questioning what their businesses are worth, or trying to adapt before AI changes their market further.

She also wants to meet founders, operators, and professionals who are ready to stop talking about AI and start building with it alongside a consistent, hands-on community.

Where can people learn more?

Connect with Christine on LinkedIn, learn more about The Magnolia Firm, follow The Magnolia Firm on Instagram, learn more about the AI Implementation Club, and RSVP for an upcoming session through Luma.