For me, make sure the start up disk is the external disk and not Macintosh HD.
I'm having this problem trying to install the new DDJ 1000 3.0 drivers on Big Sur M1 Mac. But I'm using an external 500GB NVMe drive instead of the internal 250GB drive.
1. The external drive is bigger - obviously
2. The internal drive will die one day and I'll be left with a £700 aluminium brick.
To fix this, reboot the Mac, press and hold Command (⌘) and s. That should boot into the terminal
Press enter after each command
Type:
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mount -uw /
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rm /var/db/.AppleSetupDone
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shutdown -r now
Once booted the Mac should now go through the initial setup process, and you can now create a new admin user.