Sherwood says Spurs lacked 'characters' and insisted they have no chance of finishing in the Premier League's top four if they cannot beat the top sides.
Spurs, who remain fifth in the table, have suffered five defeats in six against top-four clubs this season, and he admits that cannot continue if they want to make the Champions League spots.
"We aren't going to finish top-four if you can't beat the top teams. It ain't going to happen, you're miles away unless you beat the top teams," he told Sky Sports after the loss at Stamford Bridge.
"You have to pick up some points. All right, we beat [Man] United and Everton around us, but you can't rely on rolling over the smaller sides - it does not work out like that. We did all right in patches, but there are too many blips - you are talking about fourth, people at the club, but wake up."
Spurs had performed well for the opening 56 minutes before matters turned on their head in west London.
A Jan Vertonghen back-pass gifted Samuel Eto'o the opener, before a penalty decision went against Spurs just minutes later as Younes Kaboul saw red for a challenge on the Cameroon frontman. Eden Hazard stepped up to convert from 12 yards.
Spurs then imploded in the dying minutes, as Demba Ba grabbed two goals in two minutes to wrap up a miserable day for Sherwood, who did not pull any punches in his assessment of the performance.
He said: "The first goal, anyone can slip and it is a bad error, the second one - the penalty and sending-off - it has gone against us unfortunately and the game has gone after that but it still doesn't legislate for the capitulation. You can't have that."
Asked what he put the "capitulation" down to, he answered: "Lack of characters.
"Too many of them are too nice to each other. You need to show a bit more gut and not want to be someone's mate all the time and it can't always be me having a pop - they have to drag it out of each other. It hurts me.
"I'm not going to forget this by the time we hit the motorway. Some might - but on to the next match. That is the nature of the game."
He insists that despite the penalty that should not have been given, the Spurs fans deserved more from what they were given.
"It is not a penalty, and then it is not a sending-off," added Sherwood, "but the game has gone after that.
"We have a game Thursday in the Europa League (v Benfica) and we have to get out there and show a performance. We owe it to the fans - they were fantastic for us today - but we let them down again on the big occasion."