I think you should say exactly how small a dog you're looking for. Very small like a Pinscher? or small like a terrier, or small like a border collie (which I'd probably call medium size).
Than you should consider what kind of watchdog you want: one that gives a warning bark when strangers come, one that is very protective and can become agressive.
Will it be guarding a large yard mostly alone, will it be guarding your home or will it be with you most of the time as a "personal-defense" dog?
Every watchdog is suited to different tasks, some for more than one, but you should definetly understand what you really need the dog to do. Than if you get the breed perfect for that "job" you and your dog will both be happy.
There's nothing worse than having the wrong dog and I've seen many people do this mistake (elderly couples with border collie, boxers guarding big yards spending all the day alone...)