02/22/2011 12:54 pm ET Updated Aug 11, 2011

Made In The USA: Doughnuts With An Edge

For generations, the doughnut has been a breakfast favorite, but the actual origin of the humble treat remains unknown. Cultures throughout the world prepare variations of fried dough snacks -- the koeksuster in South Africa, the vada of India, the munkki in Finland. In the United States, the doughnut was first mentioned in a cookbook in 1803. By the early 20th century, the treats were being mass produced.

Today, the six largest doughnut chains, including Dunkin' Donuts, Krispy Kreme and Tim Horton's, brought in an estimated $6.4 billion in 2010, according to Technomic. Yet, despite the tasty treat's long history and mainstream success, independent doughnut shops across the country continue to innovate and thrive in the shadow of these giants.

The Sustainable Doughnut

Ryan Kellner's contribution to doughnut advancement is the fully organic and vegan doughnut. From Mighty O Donuts, his shop in Seattle, he also sells fair trade coffee, converts empty flour bags into compost trash bags and uses biodegradable corn-based cups.

"Making organic doughnuts isn't really that big of a deal," says Kellner, 41. "It's more a matter of being decisive about what kind of products you want to produce and staying committed." He admits there were challenges in the beginning -- "the food industry was not set up to supply us with what we needed to be organic" -- but overcame the difficulties by creating his own recipe for organic doughnut mix and sourcing non-hydrogenated oil. He sold his first doughnuts in 2000 at a street fair and opened up his shop in 2003.

"To this day, we have never used anyone else's mixes or glazes," he says. "We still make everything from scratch, and even though it is hard, we're happy and find a lot of benefit from knowing exactly what goes into our doughnuts and where it comes from."

"Our customers," he adds, "love us for what we do."

Going Gourmet

Mark Israel is another doughnuteer who established his reputation through what he puts in his confections -- sophisticated flavors and gourmet ingredients. Customers line up at New York's Doughnut Plant for unique varieties like Creme Brulee and Tres Leches and others filled with Valrhona chocolate and freshly roasted preserves simmered on site from seasonal fruit.

Israel started out in his basement, cooking and delivering the treats himself. Sixteen years later, Israel's creations have won national acclaim -- he beat celebrity chef Bobby Flay in a doughnut "throwdown" aired on the Food Network -- and are still sold in his original Manhattan shop, 19 other outlets in New York and in shops in Tokyo and Seoul.

Reinventing the Glazed Wheel

Psycho Donuts has taken another tack at selling doughnuts through a themed shop -- from employees' uniforms to the store's decor to the doughnuts themselves. Founder Jordan Zweigoron, 46, came up with the idea of a themed restaurant when he noticed Silicon Valley, where he worked in tech sales and business development, didn't have any, unlike his hometown of Chicago. Eventually, he put two and two together. "Every doughnut shop out here is dark and dingy and feels like it's 1947 when you walk in the door," he says. "It occurred to me that everything else has been reinvented out here, whether it was yogurt or hamburgers, but no one had taken doughnuts and reinvented them."

Zweigoron began doctoring up doughnuts in his home kitchen with unusual toppings like malted milk balls, cereal and Rice Krispies Treats. He and his then partner (whom he later bought out) developed 25 unusual varieties and realized the perfect theme for his store would be an asylum because the doughnuts were so crazy.

Soon after opening in February 2009 in Campbell, Calif., Zweigoron faced protests from mental health advocates who took umbrage with this theme, which "was designed to be funny and not to be taken seriously," he says. After a few months of protests, Zweigoron was able to sit down with some of the organizations upset with his theme to devise a solution. "We ended up seeing eye to eye," he says, nothing that he changed some of the store's decor and doughnut names but was able to keep the fun, unusual atmosphere he first imagined.

In addition to selling doughnuts, Psycho Donuts hosts live bands and karaoke sessions, which earned the store the "Weirdest Place to See a Live Band Award" from a local weekly newspaper. The staff wears nurse's uniforms, and patrons can plug in their iPods into the store's "Psycho Pspeaker" to share their tunes. But it's not just the atmosphere that brings in customers -- called the store's S'Mores Donut one of the top 10 doughnuts in the nation, saying "its oozing blend of chocolate, marshmallow and graham cracker nestled atop a pillow of dough tastes even better than a capture-the-flag victory."

Zweigoron no longer works in the kitchen -- he is busy building the business and using social networking to market Psycho Donuts. He credits the store's success to its uniqueness. "Starting a small, independent business in the Starbucks age is a really tough thing to do unless you can do it really creatively and out of the box," says Zweigoron, who self-funded the business and now runs it with new partner Web Granger, 38. "So when you start something independently, the more unique and the more outside the box you can be -- in your thinking, your marketing and your whole product delivery -- the more opportunities you have to get the word out and the more you're differentiated from the chain store down the street."

The original version of this article appeared on AOL Small Business on 2/22/11.