For those outside of the IT industry, a common question is, "What the heck is a VAR?"

Little do they know what a difficult question that really is to answer, as the role of the VAR continues to morph and evolve, with some VARs now starting to take on the role of a vendor by packaging and branding their own solutions for sale to other resellers.

It is that transition from VAR to vendor that a panel of IT solution providers gathered to discuss last week at the XChange Solution Provider conference, in San Diego.

Take panelist Steve Harper, co-owner of Network Management Group, in Hutchinson, Kan., who has been attending XChange for years as a VAR, but for the first time this year set up a vendor booth at XChange.

In the past couple of years, Harper has recruited hundreds of other VARs to resell his company's anti-spam and anti-virus software. Straddled on the line between VAR and vendor, his company is now "one-third traditional VAR, one-third consulting firm and one-third software developer."

For many VARs, particularly in such areas as managed services, application development and white-box custom systems building, the migration from VAR to vendor is a natural evolution, said panel moderator CMP Channel Group Research Director Monty Cornell, drawing agreement from panelists.

"In the past, most VARs looked at everyone else as competitors, but VARs and SIs are looking at it differently; now, they see the need to create partnerships and channels," said panelist Kent Erickson, president of San Diego-based Pointivity. "If someone has intellectual capital or a head start in a certain area, that tied together with the partnership just opens the door to making that transition to vendor."

But while it may seem like a natural path, making that transition is not without its challenges, agreed the panelists.

"Don't underestimate the amount of money this takes," said Harper. "You become a vendor and everyone has their MDF hat on, all they want is money from you."

Also, added panelists, while having experience as a VAR does give the VAR-turned-vendor somewhat of an edge when selling to other VARs it doesn't alleviate all of the challenges of changing business models.

"Just because we came from being a channel company that understood it from the buyers' side didn't necessarily translate into us being good at running a vendor company," said Oli Hordarson, CEO of Alvaka Networks, in Huntington Beach, Calif. "We did a deal with Ingram Micro to resell our services, and a lot of those things didn't work out for us. Today we're primarily partnering with other people on a referral basis, but we're not doing a formal reseller program."

As for tips to success, the panelists all agreed that, just as in any other business venture, the human resources you dedicate to the project are paramount. The tactics business owners used in motivating those key employees varied, with some offering incentives based on performance, others offering key executives the ability to buy into the business, and others sticking to a flat salaried approach.

Another key ingredient for success is the separation of the reseller business and the vendor business, the panelists said.

"I did not try to launch a product with my existing staff. I noticed that one or two people had real interest in what we were doing, so I pulled them out of that part of the business to put on this. That was a critical key to my success," said Harper.

Other VARs-turned-vendor, such as panelist Ramsey Dellinger, president of MSP On Demand, choose to merge off their reseller companies completely and start up a new company as a vendor.

"Some of it depends on the type of business you're doing. If your approach is revolutionary it makes more sense to spin it off than if your approach is evolutionary. A lot of it is dependent on the product you're going from that you're going to," said CMP's Cornell.