I am using lettrine to create drop caps. However, this always creates a typographical problem.
\documentclass{article}
\usepackage[utf8]{inputenc}
\usepackage{erewhon}
\usepackage{lipsum}
\usepackage{lettrine}
\usepackage{GoudyIn}
\usepackage[x11names]{xcolor}
\renewcommand{\LettrineFontHook}{\color{VioletRed4}\GoudyInfamily{}}
\LettrineTextFont{\itshape}
\setcounter{DefaultLines}{3}%
\begin{document}
\lettrine{I}{n} former days -- that is to say, once upon a time, there lived in the Land of Gramblamble, Seven Families. They lived by the side of the great Lake Pipple-popple (one of the Seven Families, indeed, lived in the Lake), and on the outskirts of the City of Tosh, which, excepting when it was quite dark, they could see plainly. The names of all these places you have probably heard of, and you have only not to look in your Geography books to find out all about them.
\end{document}
(code from How can I create documents in LaTeX using a calligraphic first letter for chapters?)

The small-caps N is not in-line with the text below it (of and Pipple). I would like it to be flush with the text, like in this image:

This second example was made with this code that uses some package called yfonts.
\documentclass{article}
\usepackage{yfonts,color}
\begin{document}
\yinipar{\color{red}L}orem ipsum [...]
\end{document}
Here, orem, perdiet, amet, and cursus align perfectly with the drop-cap. There is no "river" between the drop-cap and the rest of the text (there also isn't a small-caps on orem, but I don't care about that).
How can I make lettrine act more like the second image, with no river and with all text properly aligned?
Things that don't work:
\lettrine{I}{}n % n is still not flush
\lettrine{I}{} n % still not flush
