Unfortunately it’s not that simple on Apple Silicon Macs. Many people, including myself, are running into issues trying to boot macOS Monterey from an external USB-C SSD. I’ve tried everything I could find online to no effect: Booting after installing macOS fails.
No issues with the same drive on my older Intel-based MacBook Pro.
The only solution today seems to be buying an external Thunderbolt 3 SSD.