Twenty years ago, Seth Berkowitz was a college student craving a “hot, delicious treat” late at night.
Today, he’s CEO of Insomnia Cookies, the company he co-founded as a student that grew into a chain of more than 260 locations by satisfying that very craving for customers around the world. Insomnia was recently valued at over $500 million, following a 2018 majority acquisition by Krispy Kreme.
It generated more than $200 million in revenue last year, according to the company. “I just thought a warm cookie worked,” Berkowitz, 43, told CNBC Make It. “It was a desire that I was looking for, and it was clear that it was something that resonated with others.”
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Berkowitz started Insomnia at the University of Pennsylvania in 2002, baking cookies at his college and personally delivering them to campus early in the morning. In one semester, he made about $10,000 in profit, he said.
By the time he graduated in 2004, Berkowitz signed a lease to open Insomnia’s first physical location, near another college campus in Syracuse, New York. Stores in Champaign, Illinois, and College Park, Maryland, soon followed.
Now, as Krispy Kreme looks to sell Insomnia, Berkowitz says he’s “grateful for the journey.”
“This warm, delicious moment really works for us,” he says. “So the goal is just to keep going.”
School by day, cookies by night
Before Grubhub and Uber Eats, students had limited options for after-hours food delivery — and Berkowitz was tired of eating the same Papa John’s pizza “every night,” he says.
The economics and history major estimates he spent about $150 on ingredients to start baking cookies in the “very small kitchen” he shared with eight friends in college housing. Taking orders on his cell phone, Berkowitz made deliveries around campus until 4 a.m. some evenings.
Running a business late at night while taking classes during the day was predictably difficult. “I was going to give myself a semester or two to see if Insomnia Cookies was going to be a success or not,” Berkowitz says.
His marketing efforts—placing flyers in dorms, handing out free cookies—didn’t have much success, until a campus newspaper wrote an article about Insomnia. The company went from an average of three cookie orders a night to as many as 80, Berkowitz says.
“They put me on the front page,” he says. “It was me, and this backwards baseball cap, and a hand mixer.”
Looking to expand, he brought in a partner — co-founder Jared Barnett — and hired a handful of employees to expand Insomnia’s operations. He reinvested all of the company’s profits, creating an online ordering website and renting an off-campus kitchen to increase cookie production.
They expanded the concept to other cities, starting with Syracuse. But from there, Insomnia’s path to national success was anything but easy, Berkowitz says.
The difference between a side hustle and a startup
Managing the growth and expansion of a budding national company was much more difficult than running an academic operation, Berkowitz quickly learned.
As Insomnia’s sole employee, he made money. Paying employees and renting space have eliminated these profit margins. “Professionalizing a business is expensive…It was a very different setup and you had to invest before growth,” says Berkowitz.
The new entrepreneur spent years experimenting with different business models to return to profitability, remaining funded by angel investors. He tried ghost kitchens, licensed frozen yogurt shops and even launched vending trucks.
Barnett left the company during this period and sold his interest to Berkowitz. “At that time, my vision for the business was no longer aligned with Seth’s and we agreed to part ways,” says Barnett.
Seth Berkowitz estimates he spent about $150 on baking ingredients to start Insomnia Cookies.
Source: CNBC, Succeed
Insomnia surpassed $1 million in annual revenue for the first time in 2008, according to Berkowitz, but it still wasn’t profitable. The following year, the CEO made a drastic cost-cutting decision, reducing Insomnia’s corporate team to two people: himself and a financial associate.
Once again, he took on much of the work of running Insomnia himself – driving from New York to Philadelphia to repair a vending truck’s broken generator, personally delivering cookie dough to the Syracuse store every week, visiting college towns across the country to discover new potentials. Locations.
“2009 and 2010 (were) some of the most difficult years in Insomnia Cookies history,” Berkowitz says, adding, “There was no one else to do it. So if I were to expand the This business…it was going to take everything I had.
“Insomnia Cookies is a story of perseverance”
After nearly a decade of experimentation, Berkowitz returned to a physical model. A “very large sign” in the window would create buzz, he theorized, and fast deliveries would encourage loyal customers.
Coupled with a mobile ordering app, the strategy worked. In 2012, Insomnia financed a new location with its own internal cash flow for the first time ever, Berkowitz says – its 22nd store, in Kent, Ohio.
“It was a big step,” he says. “It created a situation where we were self-sufficient. We controlled our destiny.”
Over the next six years, Insomnia opened 125 new stores, Berkowitz says. Then the Krispy Kreme acquisition brought Insomnia into the Covid era, creating co-founder drama along the way: Barnett sued Insomnia over the sale, claiming he was owed a share of the proceeds sales.
In January, Berkowitz reportedly agreed to pay Barnett $3.5 million to settle the case. Both men declined to comment on the lawsuit.
Last year, Krispy Kreme announced plans to explore a sale of Insomnia, creating uncertainty about the company’s future. Berkowitz says he’s still focused on growing the brand, which recently announced plans to open dozens of new locations across the U.S. in 2024.
“When I talk about the brand and our journey, (I often say) Insomnia Cookies is a story of perseverance, right?” Berkowitz said. “There are so many reasons why we shouldn’t be here. And they far outweigh the fact that we are.”
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