Hello
Microsoft's personal and business products are two separate ecosystems.
Microsoft 365 personal or family plan are on the general consumer/personal product side. They all link to the personal Microsoft account, either you use outlook.com/hotmail.com alias, or free third party emails like gmail, yahoo, etc. It will NOT accept custom domain, even if you use it for personal business.
Microsoft 365 business basic/standard/premium for example, will accept custom domain email address, but these are products from the commercial/business side. They will not work with outlook.com/hotmail.com or free third party emails. When you sign up for those plans, you can either add your custom domain, or use Microsoft provided domain onmicrosoft.com.
Since these are separate products, there's no way you can just upgrade from personal products to commercial products by paying the difference.
The instruction you referenced is strictly for commercial products only.