Well of course it failed if you didn't have a USB plugged in. The program in Windows that creates the Recovery Drive will try to write to the drive, and if it can't then it will error out.
The size of your drive is the problem, and if it's of insufficient size, then you need to use a larger one.
16GB is the minimum size required, but sometimes minimum is not big enough, which is why I always use a larger drive, and no there is no other way to rebuild your BCD, since it can only be done when your OS is inactive, and that means we need to be able to boot to an external device (the Recovery Drive).