Harry Davis pulled a goal back late on but the Iron were beaten 2-1 away at Colchester United on Saturday.
They entered the game making one change from the side that defeated Crawley Town 2-1 at home a week earlier, as skipper Davis returned to the team in place of Jai Rowe.
Scunthorpe's first chance came in the second minute when they broke and Hayden Hackney played Ryan Loft in down the left side, whose powerful effort went just wide at the near post.
However, in the fifth minute, the home side went ahead as a free-kick was sent in from the right by Charlie Daniels, which was hooked into the path of and converted at the far post by former Iron loan striker Freddie Sears.
Scunthorpe tried to respond instantly, and Jake Scrimshaw sent a header just over the crossbar after Myles Hippolyte sent a dangerous cross into the area from the left.
The hosts doubled their advantage though with 14 minutes gone, as Armando Dobra cut in from the left wing and arrowed a right-footed shot into the roof of the net from the edge of the 18-yard box.
Colchester almost added a third with 23 minutes gone when Sylvester Jasper's curled effort 25 yards out, from the right, ricocheted back into play off the Iron crossbar.
Lewis Thompson then tested Shamal George at the other end, as his cross from the left almost looped into the net and he had to tip over the crossbar. Hippolyte's subsequent corner from the left was narrowly headed over the crossbar by George Taft.
The hosts then won a free-kick down the left flank, with Daniels sent in a cross from. The ball was cleared as far as Noah Chilvers, whose half volleyed cleared the crossbar.
Watson was tested again in the 37th minute, as Chilvers stung his palms with a powerful low shot from the edge of the area, and Emmanuel Onariase was then quick to get to the loose ball and clear.
There was a double Scunthorpe change at the half-time break as Devarn Green and Alfie Beestin replaced Hippolyte and Tom Pugh, and Green had the first chance of the second period a minute later when he fired over the crossbar after Ross Millen's cross had searched for Scrimshaw, before Hackney charged down the clearance.
A minute later, the ball was fed neatly into Green, who turned on the edge of the box before drilling a low effort across goal and narrowly wide.
On 52 minutes, Millen sent in a cross from the right searching for Loft, but George gathered. Moments later, from the other flank, Thompson sent in a searching cross which was headed behind for a corner.
With 57 minutes gone, Green received the ball centrally and drove forward before sending a shot wide of goal from the edge of the area.
Two minutes later, Green attacked down the left flank and sent a cross in which was cleared as far as Hackney, whose low drive was saved by George.
At the other end though, the hosts remained a threat and hit the crossbar when they broke, Sears was played through on the right and his powerful strike came back into play off the woodwork, with Watson getting the slightest of touches to the ball to turn it onto that.
There was a United change in the 61st minute when Loft was replaced by Aaron Jarvis.
With 75 minutes played, Hackney’s inviting cross into the box was turned behind under pressure from Jarvis, but the referee gave Colchester a free-kick.
Five minutes later, Jarvis latched onto a through ball and pulled the trigger, but Welch-Hayes came across to block the effort.
On 82 minutes, the Iron pulled a goal back as a corner was played in from the right, and Colchester survived two handball shouts in a goalmouth scramble before skipper Davis turned the ball home from close range.
There were four minutes of added time given, and in the first of those Beestin and Jarvis probed to try and work an opening but the home goalkeeper managed to gather.
There were no more chances for the away side though and the Iron suffered defeat in Essex.
Scunthorpe return to action next Saturday when they host Doncaster Rovers in the Emirates FA Cup first round.
COLCHESTER: George, Welch-Hayes, Chambers, Wiredu, Skuse, Sears (Clampin, 87), Chilvers, Jasper (Nouble, 65), Eastman, Dobra (Hannant, 90+3), Daniels.
COLCHESTER SUBS NOT USED: Turner, Smith, McCoulsky, Kennedy.
IRON: Watson, Millen, Taft, Onariase, Loft (Jarvis, 61), Hippolyte (Green, 45), Thompson, Scrimshaw, Pugh (Beestin, 45), Davis, Hackney.
IRON SUBS NOT USED: Balme, Rowe, Wood, O'Neill.
ATTENDANCE: 2,433 (181 away).