Jonathan Sposato at Picnik's Seattle office

Picnik co-founder Jonathan Sposato has built one of the fastest growing Internet startups in Seattle. And the seasoned entrepreneur -- who previously sold startup companies to Electronic Arts and Google -- is doing it without any venture capital.

The online photo editing service that he created with Mike Harrington and Darrin Massena nearly four years ago now attracts more than 10 million unique visitors per month, making Picnik one of the top destinations to edit, alter and share digital photos.

We caught up with the 42-year-old sharp dressed exec at the company's colorful new offices in the Terminal Sales Building in Belltown, just a few blocks away from the restaurant and bar that Sposato owns: The Spitfire. (Sposato also opened a new pub on Microsoft's campus in April.)

It is not every day that an Internet entrepreneur applies his skills to the bar/restaurant business. So, we asked Sposato -- a political science grad from Whitman College who previously spent 12 years at Microsoft -- about lessons from that experience. And we chatted about the art of bootstrapping a business, why this economy is good for entrepreneurs and how Picnik is faring against Adobe.

How did you come up with the idea for Picnik? "We really didn't know if this was going to be like a PowerPoint application, or something like what Zoho might have done with Office and things like that. We had an explicit idea to do something that was really, really hard, something where it would be graphically intensive, computationally intensive and where you would be able to ... create barriers such as it is hard for others to replicate you."

On forming Picnik:

"The world didn't really need another photo editor when Picnik came along, so the process was actually a much more thoughtful and reasoned approach, frankly much more so than we care to admit. We just like to think that there was this really brilliant flash of insight and there it was, this completely unique product. But the fact of the matter was it was kind of a staged approach."

On the importance of the team:

"I do think it is much, much more important to build that killer team first and then come up with the great idea, the killer app."

When did you know that you had built something that was resonating?

"When I saw the first prototype and how almost magical it felt, how weightless the experience felt when you just opened up the browser and typed in www.picnik.com and automatically -- you didn't have to download anything or install anything -- and here's all of this rich utility and functionality and it was just right there. And we now kind of take it for granted, right? But back then, it was like holy smokes, this is fast, this is lightweight and this is easy, I think it is going to go places."

On how time moves at startups:

If you were to tell me, 'Jonathan, you've been doing Picnik for almost four years, I would be like, really, I have. That doesn't even sound right."

How many years does it feel like?

"It feels like it has been one year. There's this weird time warp or reality distortion that happens when you are doing a startup, and this may be true if things are going well or not well, you just sort of lose all track of time. You literally wake up and go: 'Crap, I have not done my 2006 taxes yet."

How many visitors do you have?

"We are between 10 and 11 million monthly uniques, which is pretty good and we are still growing. We are like 31 or 32 million monthly visits, straight up visits. Our average session times -- that's where we are off the charts.... Our average session time, and this is an average, is like 18 minutes. That's a long time to be spending on one Web site."

Are you profitable?

"We are cash flow positive, so we are revenue positive. No, we are not profitable yet, but we know that we can get there. I am being more hard-core about how I define profitability. If you merely define profitability as your income every month consistently exceeds your expenses, we are doing that by a very nice margin, so that's good. We are in the black. But if I was also to figure in effectively what is shareholder loans that the three co-founders put into the company for the first two and a half to three years, we haven't all paid ourselves back yet."

You've built Picnik with your own money -- about $1 million from the founders. Talk about bootstrapping the business?

"I love it. I love bootstrapping a company. I did that with every startup, even the games business I did way back in the day. I would be the first to say that I don't know the first thing about how to raise money. I think there are a lot of people who do an amazing job of getting out there and meeting with a bunch of VCs, and they are very brave and very courageous.

It is almost like it is an actor that has to go to auditions like all of the time. I've had actors tell me that they have to steal themselves to just be OK with rejection, of being told no and all of that stuff. I am just not that good. I don't know the first thing about how to do that well.

That being said, I love bootstrapping companies for a number of reasons -- one is that nothing sort of crystallizes trade offs more than when you are using your own money or you are using money that is hard to come by or is expensive money...."

What do you mean?

"You get really concrete about stuff. Your whole life is interrelated. You think about, 'gosh, should I remodel my house? Or you can say but that money, that $30,000, could help us buy some servers and that's an investment -- not just in my future -- but it creates value for a lot of other people. You start to think about that stuff, at least I do, all of the time."

What else about bootstrapping?

"Your decision making can be quicker. When you are not using somebody else's money, you don't have a big board that you have to meet with."

You also own the Spitfire bar in Belltown and now one on Microsoft's campus. Are there similarities between a bar and an Internet company?

"There's a lot, and I actually talk about it all the time here."

What's the key take away from the restaurant business that you've applied to the startup world?

"Little things add up. You have to really manage your fixed costs and your variable costs really thoughtfully and carefully and with discipline. Running a bar and a restaurant is kind of like playing with a medicine ball as a business. It is very real time. You have to be very decisive and make decisions quickly. And every day is a struggle to manage your costs while at the same time grow and keep up your top line revenue."

Anything else?

"If you build your product to be female friendly, both women and men will show up.  if you build your product for guys, women will not feel welcomed."   

What's the significance of the Picnik name? 

"(Co-founder) Mike Harrington actually came up with the name of the company, Bitnik, just because it sounded cool... Picnik came about as a derivative of that and frankly it was a code name at first, and I loved it and I insisted ... that it really needs to be the real name."

You face some big competition with Adobe's PhotoShop Express. What's that landscape looking like right now?

"I think that's fascinating. We were very, very scared at first. And we knew that Adobe was going to do something. If we were them, we would do this, so for a good year we knew they were building something and that it was inevitable that they were going to have this thing that would compete with us."

How do you compete with PhotoShop Express?

"To this day, I still feel like the ecosystem and the marketplace is big enough that there can be multiple approaches....They came out with PhotoShop Express and I thought there were a lot of things about it that were very handsome, very well done and very well thought through. Since then, what we have seen is people are voting with their mouse clicks, and we are seeing Picnik's traffic beat PhotoShop Express' traffic by an order of magnitude, like eleven or twelve (times)."

Why is that?

"Generally speaking, Picnik is just a much easier product to use. Number two, somewhat related to it but I think it is important to make this distinction, and this has always been one of our assets and one of core competencies, Picnik makes an emotional connection with the users.... We feel more like an experience than just a tool. We feel like a happy, comfortable sunny place where someone can hang out for 20 minutes or more, versus I am just going to crop and get this done and move on to the next thing: Facebook, or American Idol or Grey's Anatomy.  Picnik feels fun, and people want to hang out there."

How many people are interacting with the site through a third party partner site such as Flickr, Facebook or PhotoBucket?

"It is a small percentage of our overall traffic. Forty seven percent of our traffic is direct, someone typing in www. picnik.com. That blows me away.  There's another 25 percent that is through what Google Analytics calls organic search engine queries...."

So that's just about 25 percent through the partners?

"That's right."

What has surprised you about how people are using Picnik?

"It has changed as the product has changed. We built Picnik to bridge out to other sites to places where your photos are -- where Facebook is, where your Flickr account is, where your Webshots account is.... We thought that was just so cool. 'Wow, this is cloud computing and Web 2.0' and all of that stuff.

As it turns out, people don't really care about that stuff. They sort of have their Flickr account, but maybe they really just want to use Picnik on a photo that is just on their hard-drive.

We have found to our surprise, that the vast majority of people open and edit in Picnik and then save to their hard drive. They open from their hard drive and save to their hard drive. That blows me away, because I am kind of thinking: 'Why are you using a Web application that works in your browser for that because then you need to make round trips to and from?' But people cognitively don't think of it that way. They just think of the coolest or most fun solution -- easy. I will just use that." 

What about iPhoto on a Mac? How do you view them as a competitor?

"Mac users are disproportionately represented as Picnik users. So my simple answer to that is you are definitely asking all of the right questions. We very much see Apple's iPhoto -- the client products, the classic products like iPhoto or Google's Picassa or PhotoShop Elements -- those are now the products we feel that Picnik is competing against.... That has been very eye opening. There is both something heartening there, and something scary which is the realization that: 'Oh, our competitors aren't these guys over here, but they are really these guys."

How many buyout offers have you received?

"If I was to actually count, what's the right word: several. We are always very flattered by those types of conversations, but having gone through the M&A process before sometimes I think it is amazing that it happens at all sometimes because there are so many factors that have to go into it."

Are you thinking about selling?

"I would say that we don't have a for sale sign up on our front lawn. While that is true, I would be a fool not to return someone's phone call should they want to talk about that."

You are a startup guy and you said that you are surprised you are four or five years into this. Why not sell?

"I am still having fun. And part of what motivates me is sort of cracking the nut or solving the puzzle. It has been tremendously satisfying to have Picnik be received so well by the world and Internet users."

So what's the next milestone after turning cash flow positive?

"It is to be that big, long-term sustainable business where -- as a company and as shareholders -- we have multiple degrees of freedom." 

On the economy:

"I actually love what is going on right now, and I am exaggerating for effect. But the days of 'we will build it and they will come and we don't really have a business model' -- those days our gone. The pendulum has swung back to really sound business fundamentals, and there is a great deal of satisfaction to achieving those things."

A closer look at Jonathan Sposato:

Age: 42

Hometown: Raised in Brooklyn, New York and Hong Kong before moving to Seattle around the age of 10.

Sposato

Family: "I was raised by a single mom. My mom was a nurse anesthetist and she couldn't take care of me anymore past a certain age, and it was very tough for her to make ends meets. So she sent me to live with my grandparents in Hong Kong.... It was a great learning experience."

How did you get into the tech experience: "My dad (adoptive father Don Sposato) brought home an Apple II computer when I was about 14 years old and I was fascinated by this thing. I taught myself how to program on it, and actually wrote some games that I sold through the local Call-A.P.P.L.E -- it was basically like a very highly organized user's group."

First job: Swept the factory floors, prepped computer components and cleaned motherboards at his uncle's printed circuit board and disc drive factory in California. Payment for summer work was an Apple III computer.

College: Whitman College, political science major. "I was not taking the whole computers things very seriously. It was a hobby. It was a great way to make a few bucks, but I didn't assume there was a career in it."

On his piece of Google history: Sold Phatbits to Google in 2005.  "It became Google Gadgets."

In one word what is your favorite thing about startups: "Freedom."

And your least favorite thing: "That's a lot harder to answer. Being out of sync with the rest of the world."

Favorite gadget: "I don't even have an iPhone.... I still think it is my MacBook Air. I love that laptop more than I should love a laptop. It is so good."

Favorite game of all time: Connect Four.

Favorite TV Show: The Real Housewives of New York City. A close second is Battlestar Galactica.

Favorite Web site: Etsy. "I really like what they have done, both as a business and the contribution that they have brought to the Internet community."

Hobbies: Collects vintage World War II flight jackets. "They have so much history."