The Heed went down 2-1 at Rochdale and bow out despite a magnificent second half effort.
Watson told the club’s YouTube service that giving a League One club a big headstart at home was just too much to overcome.
“I’ve told the players that I’m really proud but still a bit disappointment,” the manager said.
“The real killer was the second goal so soon after the first. I didn’t really give us the fighting chance we needed in the second half but I thought we were excellent.
“We were on the front foot, we had chances and we were forcing them back. We just couldn’t make it pay with an equaliser.
“You’re always up against it if you give a League One club a two-goal lead at their own ground but we didn’t give in.
“Even in the first half we had as many chances as they did,” he added.
“We just need that something to go our way. They got that with the first goals but we didn’t get that one moment you need in games like this.
“We’ve now got a couple of important weeks in the National League. We’re playing teams in and around us so we need to to get up into the promotion positions if we can.”