Two decades ago, Seth Berkowitz was a college student with a late-night craving for a “warm, delicious treat.”
Today, he’s the CEO of Insomnia Cookies, the company he co-founded as a college junior and grew into a chain with more than 260 locations by satisfying that very craving for customers around the world. Insomnia was most recently reportedly valued at more than $500 million, following a 2018 majority-stake acquisition by Krispy Kreme.
It brought in over $200 million in revenue last year, according to the company. “I just thought a warm cookie worked,” Berkowitz, 43, tells CNBC Make It. “It was a craving 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 in his college house and personally delivering them around campus in the early hours of the morning. In one semester, he made roughly $10,000 in profit, he says.
By the time he graduated in 2004, Berkowitz signed a lease to open Insomnia’s first brick-and-mortar location, near another college campus in Syracuse, New York. Stores in Champaign, Illinois and College Park, Maryland soon followed.
Now, with Krispy Kreme looking to sell Insomnia, Berkowitz says he’s “grateful for the journey.”
“That warm, delicious moment is really working for us,” he says. “So, the goal is to just keep going.”
School by day, cookies by night
In the days before Grubhub and Uber Eats, college students had limited options for after-hours food delivery — and Berkowitz got tired of eating the same Papa John’s pizza “every night,” he says.
The economics and history major estimates he spent roughly $150 on ingredients to start baking cookies in the “really small kitchen” he shared with eight friends in college housing. Taking orders on his cellphone, Berkowitz drove deliveries around campus as late as 4 a.m. some nights.
Running a late-night business while attending 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,” says Berkowitz.
His marketing efforts — putting flyers in dorms, handing out free cookies — didn’t gain much traction, until a campus newspaper wrote an article about Insomnia. The business went from averaging three cookie orders per 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 grow Insomnia’s operations. He reinvested all of the business’ profits, building a website for online ordering and renting a commissary kitchen off-campus to increase cookie production.
They took the concept to other cities, starting in Syracuse. But from there, Insomnia’s path to national success was anything but smooth, says Berkowitz.
The difference between a side hustle and a startup
Managing the growth and expansion of an aspiring national business was much harder than running a college side hustle, Berkowitz quickly learned.
As Insomnia’s sole employee, he made money. Paying employees and renting space eliminated those profit margins. “Professionalizing a business [is] expensive … It was a much different setup and it required investing ahead of growth,” Berkowitz says.
The first-time entrepreneur spent years experimenting with different business models to reach profitability again, staying funded through angel investors. He tried ghost kitchens, licensed frozen yogurt shops and even launched vending trucks.
Barnett left the company during that period, selling his equity stake to Berkowitz. “At that time, my vision for the company was no longer aligned with Seth’s, and we agreed to part ways,” Barnett says.
Seth Berkowitz estimates he spent roughly $150 on baking ingredients to start Insomnia Cookies.
Source: CNBC Make It
Insomnia topped $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, downsizing Insomnia’s corporate team to two people: himself and a finance associate.
Once again, he took on much of the work of running Insomnia himself — driving from New York to Philadelphia to fix a vending truck’s broken generator, personally delivering cookie dough to the Syracuse store every week, visiting college towns across the country to scout new potential locations.
“2009 and 2010 [were] some of the hardest years ever at Insomnia Cookies,” says Berkowitz, adding: “There wasn’t anyone else to do it. So, if I was going to grow the business … it was going to take everything that I [had].”
‘Insomnia Cookies is a perseverance story’
After nearly a decade of experimentation, Berkowitz returned to a brick-and-mortar model. A “really huge sign” in the window would create buzz, he theorized, and quick deliveries would encourage repeat customers.
Coupled with a mobile ordering app, the strategy worked. In 2012, Insomnia funded a new location with its own internal cash flow for the first time ever, says Berkowitz — its 22nd store, in Kent, Ohio.
“That was a huge milestone,” 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 ushered Insomnia through the Covid era, creating some co-founder drama along the way: Barnett sued Insomnia over the sale, claiming he was due a share of the proceeds.
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 over the future of the business. 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] that Insomnia Cookies is a perseverance story, right?” says Berkowitz. “Like, there’s so many reasons why we shouldn’t be here. And they very much outweigh the fact that we are.”
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