Y E S !!! It
IS possible! I've just accomplished it!
Update to Big Sur 11.1 on your internal SSD first.
I have a
WD My Passport 500Gb SSD plugged into the innermost (closest to the HDMI port)
USB-A port (not sure it matters which USB-A port you use, but I'm using my exact results for reference), via the
USB-A adapter that came with the USB-C cable for the drive. USB-C doesn't work, whereas USB-A does! Weird!
I formatted the drive as Untitled, APFS (plain; no encryption/case sensitivity), and GUID partition map. I booted up the M1 Mac Mini as normal (not in Recovery mode), and copy/pasted the Installer to the desktop (attempting to drag the installer to the desktop just creates an alias). I ran the installer. When it's done, the reboot process takes a little bit (be patient or just ignore it for awhile), but when it's done, you will get the language request. Time to set 'er up!
I am typing this response from my external drive install and... surprisingly, I'm not noticing any difference. Boot up takes a little longer... maybe a couple seconds? But the rest of the system seems just as fast as before.
So, know that, if you don't want to spend over $150+ on a Thunderbolt 3 drive, you don't HAVE to. Head to Best Buy and get yourself a nice WD My Passport 500GB USB-C drive for about $80 and use the USB-A adapter for it. Install will take a bit longer, but...
IT WORKS!!! ???