This man says a Google mistake completely destroyed his business

What Google gives, it can take away. Startup founder Matt Haughey learned the strength of the search engine's power the hard way.

Haughey created the community blog MetaFilter in the late 90s, grew it into a flourishing business, and then lost almost everything because of an accidental Google penalty in 2012. The episode ultimately taught him about the importance of diversifying your revenue as a startup and saving more money than you need to, he reflected in a recent interview with IndieVC.

Here's what happened:

The story really starts in 2011, when about 95% of MetaFilter's revenue was coming from Google's AdSense product, which companies can use to place ads on their websites. Because the question-and-answer section of MetaFilter's site was getting tons of traffic, it could display a lot of ads and make lots of money.

But suddenly, in 2012, Ask MetaFilter's traffic plunged. The site lost half its ad revenue overnight.

Google had made an update to its search rankings that affected MetaFilter's spot. Google's updates are meant to down-rank sites that it doesn't think are as valuable to people using its search engine, like those with "thin" content or unnatural linking. But Haughey didn't know what the issue with MetaFilter was that caused it to be punished (SearchEngineLand's Danny Sullivan wrote a comprehensive overview of its situation).

So, Haughey contacted Matt Cutts, head of Google's web spam team, who told him that Metafilter was flagged in the update, but that Google would reindex the site in a month or two which would solve the problem.

But things didn't go back to normal.

"I kept waiting. For a year and a half, I waited," Haughey told IndieVC. "It got to the point where we couldn't pay our bills. That's when I reached out again to Matt Cutts, 'Things never got better.' He was like, 'What, really? I'm sorry.' He looked into it and was like, 'Oh yeah, it never reversed. It should have. You were accidentally put in the bad pile.'"

Looking back, Haughey says that he regrets having so much of MetaFilter's revenue come from a single source and putting so much of its money into payroll and perks, instead of stockpiling it. Although he knew the site's ad revenue might trail off someday, he didn't expect it to drop off a cliff all at once. He ended up having to lay off part of site's staff.

His advice to other startups?

Diversify your income and save more money.

Read the rest of the interview here>>